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 MARCH 31, 2004
[ ] 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.)
2420 NORTH MAIN STREET, MADISONVILLE, KENTUCKY 42431
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(Address of principal executive offices)
(270) 326-3500
- --------------------------------------------------------------------------------
(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 March 31, 2004, 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
----
PART I. FINANCIAL INFORMATION
- ------
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2004
(unaudited) and December 31, 2003 3
Condensed Consolidated Statements of Operations - (Unaudited)
for the three months ended March 31, 2004 and 2003 4
Condensed Consolidated Statements of Cash Flows - (Unaudited)
for the three months ended March 31, 2004 and 2003 5
Condensed Consolidated Statements of Changes in Stockholders'
Equity for the three months ended March 31, 2004 and 2003 7
Notes to Condensed Consolidated Financial Statements
(Unaudited) 8
Item 2. Management's Discussion and Analysis or Plan 10
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.
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
2004 2003
----------- -----------
(UNAUDITED)
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 449,509 $ 1,068,146
Interest-bearing demand deposits 2,030,721 15,916
Interest-bearing time deposits -- 25,000
----------- -----------
Total cash and cash equivalents 2,480,230 1,109,062
Securities, held-to-maturity 1,062,294 1,424,067
Securities, available-for-sale, at fair value 2,002,050 1,975,718
Loans, net of the allowance for loan loss of
$220,171 and $180,955 at March 31, 2004 and
December 31, 2003, respectively 38,222,441 35,066,142
Premises and equipment, net 2,357,184 1,952,549
Federal Home Loan Bank (FHLB) stock 666,100 659,600
Interest receivable 199,085 159,150
Deferred income taxes 253,478 127,677
Other assets 57,672 67,499
----------- -----------
Total assets $47,300,534 $42,541,464
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $37,230,023 $33,171,526
FHLB advances 6,000,000 5,000,000
Interest payable and other liabilities 105,957 161,171
----------- -----------
Total liabilities 43,335,980 38,332,697
----------- -----------
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 at March 31, 2004 and December
31, 2003 2,777 2,777
Additional paid-in capital 2,466,428 2,466,428
Retained earnings - substantially
restricted 1,500,529 1,763,045
Accumulated other comprehensive income (5,180) (23,483)
----------- -----------
Total stockholders' equity 3,964,554 4,208,767
----------- -----------
Total liabilities and stockholders' equity
$47,300,534 $42,541,464
=========== ===========
See notes to condensed consolidated financial statements.
3
COMMUNITY FIRST BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
----------------------------
2004 2003
--------- --------
Interest and Dividend Income:
Loans $ 546,222 $483,545
Investment securities 30,493 28,811
Dividends on FHLB stock 6,560 6,254
--------- --------
Total interest and dividend income 583,275 518,610
--------- --------
Interest Expense:
Deposits 200,527 194,862
FHLB advances 17,507 2,424
--------- --------
Total interest expense 218,034 197,286
--------- --------
Net Interest Income 365,241 321,324
Provision for Loan Losses 39,000 19,000
--------- --------
Net Interest Income After Provision for
Loan Losses 326,241 302,324
--------- --------
Noninterest Income
Service charges and fees 39,730 33,414
Loss on sale of other real estate 404 --
Foreclosed real estate expense, net (1,702) --
Insurance commissions and premiums 5,981 1,866
Other income 6,088 7,838
--------- --------
Total noninterest income 50,501 43,118
--------- --------
Noninterest Expense
Compensation and benefits 255,062 119,455
Directors fees 10,800 10,800
Occupancy expense 112,365 31,374
Insurance premiums 8,593 5,628
Data processing 79,654 39,383
Advertising 44,065 18,055
Office supplies and postage 47,024 14,360
Payroll and other taxes 25,233 17,133
Professional fees 42,625 7,236
Expenses relating to conversion of data 110,834 --
processor
Other operating expenses 38,232 23,832
--------- --------
Total noninterest expense 774,487 287,256
--------- --------
Income (Loss) Before Income Taxes (397,745) 58,186
Provision (Credit) for Income Taxes (135,229) --
--------- --------
Net income (loss) $(262,516) $ 58,186
========= ========
Basic earnings (loss) per share $ (0.95) $ 0.21
========= ========
See notes to condensed consolidated financial statements.
4
COMMUNITY FIRST BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
--------------------------
2004 2003
----------- -----------
Operating Activities:
Net income (loss) $ (262,516) $ 58,186
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
FHLB stock dividend (6,500) (6,200)
Provision for loan losses 39,000 19,000
Depreciation, amortization and accretion 54,761 12,000
Loss on sale of foreclosed assets 404 --
Deferred income tax benefit (135,230) --
Change in assets and liabilities:
Other assets 9,423 --
Accrued interest receivable and other assets (39,935) (14,664)
Accrued interest payable and other liabilities (55,214) 1,810
----------- -----------
Net cash provided(used) by
operating activities (395,807) 70,132
----------- -----------
Investing Activities:
Net increase in loans (3,195,299) (2,050,988)
Proceeds from maturities/calls of held-to-maturity
securities 361,773 12,144
Purchases of premises and equipment (457,996) (5,546)
----------- -----------
Net cash used in investing
activities (3,291,522) (2,044,390)
----------- -----------
Financing Activities:
Net increase in deposits 4,058,497 2,506,062
Payments on short-term borrowings (1,000,000) (1,000,000)
Proceeds from short-term borrowings 2,000,000 1,000,000
----------- -----------
Net cash provided by financing activities 5,058,497 2,506,062
----------- -----------
Net increase in cash and cash equivalents 1,371,168 531,804
Cash and cash equivalents, beginning of period 1,109,062 758,126
----------- -----------
Cash and cash equivalents, end of period $ 2,480,230 $ 1,289,930
=========== ===========
See notes to condensed consolidated financial statements.
5
COMMUNITY FIRST BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-------------------
2004 2003
-------- --------
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $213,645 $196,695
======== ========
NON-CASH TRANSACTIONS:
Federal Home Loan Bank Stock dividend received $ 6,500 $ 6,200
======== ========
Loans transferred to foreclosed real estate $ 27,600 $ --
======== ========
Loans to facilitate the sale of foreclosed real estate $ 29,000 $ --
======== ========
See notes to condensed consolidated financial statements.
6
COMMUNITY FIRST BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(UNAUDITED)
2004 2003
----------- -----------
Balance January 1 $ 4,208,767 $ 1,748,866
Net income (loss) (262,516) 58,186
Issuance of common stock -- --
Other comprehensive income (loss), net of tax 18,303 --
----------- -----------
Balance at end of period $ 3,964,554 $ 1,807,052
=========== ===========
See notes to condensed consolidated financial statements.
7
COMMUNITY FIRST BANCORP, INC.
NOTES TO CONDENSED 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 condensed 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 condensed
consolidated balance sheet of the company as of December 31, 2003 has
been derived from the audited condensed 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. 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 condensed consolidated financial statements include the
accounts of the Company and the Bank for the periods presented in 2004
and the accounts of the Bank for the periods presented in 2003. 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:
2004 2003
---- ----
Unrealized loss on available-
for-sale securities before
tax effect $27,732 $--
Tax expense 9,429 --
------- ----
Other comprehensive loss $18,303 $--
======= ====
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).
2004 2003
---- ----
Three months ended March 31:
Net income (loss) $(262,516) $ --
Weighted average number of
common shares 277,272 --
--------- -----
Basic Earnings (Loss)
per share $ (0.95) $ --
========= =====
As of March 31, 2003, the Company had no shares of common stock
outstanding. As such the statement of income for March 31, 2003 does not
disclose earnings per share as would otherwise be required.
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 condensed 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 Annual Report on Form 10-KSB 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 condensed
consolidated balance sheet. Note 1 to the consolidated financial statements in
the Company's Annual Report on Form 10-KSB 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 $220,171 was adequate, but not excessive, to absorb estimated credit
losses associated with the loan portfolio at March 31, 2004.
DEFERRED INCOME TAXES. We have a deferred tax asset of $253,478. 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 March 31, 2004,
there is no valuation allowance established. The deferred tax asset will be
utilized as we become profitable, which we project to occur in the second
quarter of 2004. Prior to the expenses incurred with our computer conversion and
the opening of our new main office, we had three consecutive profitable quarters
from January 2003 through September 2003. The estimate of the realizable amount
of this asset is a critical accounting policy.
11
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE THREE MONTH PERIODS ENDED MARCH
31, 2004 AND 2003
NET INCOME. Net loss for the quarter ended March 31, 2004 was $(262,500)
compared to a net income of $58,000 for the same period last year. The Company's
net loss for the three months ended March 31, 2004 reflects expenses incurred as
a result of opening a new main office, as well as expenses associated with a
computer conversion which offset improvements in net interest income and
noninterest income.
NET INTEREST INCOME. Net interest income increased $43,900 or 13.7% to $365,200
for the three months ended March 31, 2004 compared to $321,000 for the three
months ended March 31, 2003. This increase reflects a shift in interest-earning
assets into higher-yielding loans. During the three months ended March 31, 2004,
net loans averaged $36.3 million for the period as compared to $27.6 million
during the first three months of fiscal year 2003. While interest rates
decreased during this period, interest income increased by $64,700 primarily due
to higher outstanding loan balances. Net interest income also benefited from
reduced deposit costs in the lower interest rate environment as higher costing
certificates of deposit matured. With increased deposits of $4.1 million,
interest expense increased by $21,000. The Bank's interest rate spread decreased
to 3.22% for the three months ended March 31, 2004 compared to 4.23% for the
three months ended March 31, 2003. Net interest margin increased to 3.19% for
the 2004 period compared to 4.24% for the 2003 period.
PROVISION FOR LOAN LOSSES. The provision for loan losses was $39,000 and $19,000
for the quarters ended March 31, 2004 and 2003, respectively. The Bank makes
provisions for loan losses in amounts deemed necessary to maintain the adequacy
of the allowance for loan losses. At March 31, 2004, the Bank's allowance for
loan losses was $220,200 or 0.57% of the gross loan portfolio.
NONINTEREST INCOME. Noninterest income was $50,500 and $43,000 for the quarters
ended March 31, 2004 and 2003, respectively. The increase for the most recent
quarter of $7,400 or 17.1% is reflective of management's ongoing efforts to
enhance fee income.
NONINTEREST EXPENSE. Noninterest expense was $774,500 and $288,000 for the
quarters ended March 31, 2004 and 2003, respectively. The increase for the
quarter of $487,200 or 169.6% was due primarily to the addition of a new main
office and expenses incurred in the computer conversion. The opening of the new
main office and its related renovations and improvements created increased
occupancy expenses of $74,991 or 200.6% to $112,000 for the three months ended
March 31, 2004 compared to $31,400 for the quarter ended March 31, 2003.
Computer conversion expenses totaling $110,800 for the three months ended March
31, 2004 included billed items from our previous data processor of $22,700 for
data test tapes and $39,000 for online deconversion services. Also included were
items from our new data processor such as data mapping and converting, parameter
setup, item processing setup, data communication installation fees, and software
license fees. Computer and data processing expense increased by $40,300 or
102.2% to $79,700 for the three months ended March 31, 2004 compared to $39,400
for the three months ended March 31, 2003. Compensation and benefits expense
increased by $135,600 or 113.5% to $255,000 for the three months ended March 31,
2004 compared to $119,400 for the three months ended March 31, 2003. Salaries
for officers increased by $57,600 or 123% to $104,600 for the three months ended
March 31, 2004 compared to $47,000 for the three months ended March 31, 2003
12
due to the addition of four new loan officers, two of who also serve as branch
managers for our two locations. Salaries for employees increased by $32,600 or
76% to $75,600 for the three months ended March 31, 2004 compared to $43,000 for
the three months ended March 31, 2003 due to the addition of six new employees
hired to help with staffing of the new main office. Advertising expenses
increased $26,000 or 144.1% to $44,000 for the first three months ended March
31, 2004 compared to $18,100 for the quarter ended March 31, 2003. The change
was due primarily to marketing the new main office and the activities associated
with its grand opening on March 5, 2004, as well as marketing efforts to explain
our computer conversion and its effects to our customers. Office supplies and
postage expenses increased $32,700 or 227.5% to $47,000 for the first three
months ended March 31, 2004 compared to $14,400 for the quarter ended March 31,
2003. The change was due primarily to the purchase of necessary paper and
supplies required to open the new main office. Professional fees increased
$35,400 or 489.1% to $42,600 for the quarter ended March 31, 2004 compared to
$7,200 for the first three months ended March 31, 2003. The change was due
primarily to additional fees incurred in connection with SEC reporting
requirements.
INCOME TAX EXPENSE. The Company provides for both the current and deferred tax
effects of the transactions reported in its financial statements and established
deferred tax assets and liabilities for the temporary differences between the
financial reporting and tax bases of its assets and liabilities. The Company
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, its future projected earnings, and other factors, the
Bank determined in 2002 that it was appropriate to establish a valuation
allowance for its net deferred tax assets. The Company determined in 2003 that
the net deferred tax assets would be realizable, and the corresponding deferred
tax valuation allowance was eliminated.
COMPARISON OF BALANCE SHEETS AT MARCH 31, 2004 AND DECEMBER 31, 2003
The Company's total assets as of March 31, 2004 were $47.3 million, an increase
of $4.8 million or 11.3% from December 31, 2003's level of $42.5 million. The
increase was due primarily to growth in the loan portfolio, more specifically an
increase in commercial real estate loans. Net loans receivable increased by $3.2
million, or 9.0%, which reflected our continued marketing efforts. The Company's
investment securities decreased by $335,400, or 9.9%, to $3.1 million at March
31, 2004 due to maturities of securities. Premises and equipment increased
$404,600, or 20.7%, primarily due to the opening of a new main office and the
purchase of equipment for the new office. The Company's cash and cash
equivalents as of March 31, 2004 were $2.5 million, an increase of $1.4 million
from December 31, 2003's level of $1.1 million. The increase is attributable to
increased borrowings from the Federal Home Loan Bank to help fund increases in
loan demand.
Liabilities increased by $5.0 million, or 13.1%, to $43.3 million due primarily
to a $4.1 million, or 12.2%, increase in deposits as the Bank continued to
attract deposits locally at favorable rates. The increase in deposits came
primarily from checking accounts and certificates of deposit. Federal Home Loan
Bank advances increased $1.0 million or 20% to $6.0 million at March 31, 2004
from $5.0 million at December 31, 2003. The Bank has used proceeds from the
advances to help meet loan demand.
13
Stockholders' equity decreased to $4.0 million at March 31, 2004 from $4.2
million at December 31, 2003. The decrease in stockholders' equity principally
reflects $262,500 in losses during the period.
At March 31, 2004, the Bank was in compliance with all applicable regulatory
capital requirements with tangible and core capital equal to 8.11% of adjusted
total assets and total risk-based capital equal to 15.47% of risk-weighted
assets.
ASSET QUALITY
The following table sets forth information regarding the Bank's nonperforming
assets at the dates indicated.
MARCH 31, DECEMBER 31,
2004 2003
--------- --------
Non-accrual loans $ 69,000 $ 28,000
Accruing loans past due 90 days or more 100,000 20,000
-------- --------
Total non-performing loans $169,000 $ 48,000
======== ========
Accruing loans past due 90 days or more at March 31, 2004 consisted of six loans
of which five became current after the end of the quarter.
At March 31, 2004, 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:
THREE MONTHS ENDED
MARCH 31,
----------------------------
2004 2003
--------- ---------
Balance, beginning of period $ 180,955 $ 105,868
Loans charged off 0 (1,031)
Loan recoveries 216 445
--------- ---------
Net charge-offs 216 (586)
39,000 19,000
Provision for loan losses
--------- ---------
Balance, end of period $ 220,171 $ 124,282
========= =========
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
14
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 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 March 31, 2004, totaled $2.5 million
compared to $1.3 million at March 31, 2003. The Bank's cash flows were provided
mainly by financing activities, including $4.1 million from net deposit
increases and $1.0 million net increase in FHLB borrowings. Operating activities
used $395,800 in cash for the three months ended March 31, 2004 compared to
$70,132 provided in cash for the three months ended March 31, 2003. The Bank
used cash flows of $3.3 million for its investing activities primarily to fund
an increase in gross loans of $3.2 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 March
31, 2004, 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) Reports on Form 8-K. On January 26, 2004, the Registrant filed a
Current Report on Form 8-K, announcing the date of the 2004 annual
meeting of stockholders under Item 5.
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: May 14, 2004 /s/ William M. Tandy
--------------------------------------------
William M. Tandy, President
(Duly Authorized Representative)
Date: May 14, 2004 /s/ Michael D. Wortham
--------------------------------------------
Michael D. Wortham, Vice President
(Chief Financial Officer)
17