UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1996
Commission File Number: 0-27930
Community Federal Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Delaware 64-086536
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or
organization)
P.O. Box F 38802
333 Court Street (Zip Code)
Tupelo, Mississippi
(Address of principal executive offices)
Registrant's telephone number, including
area code: (601) 842-3981
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at June 30, 1996
Common Stock, $.01 par value 4,628,750 shares
COMMUNITY FEDERAL BANCORP, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL
CONDITION AS OF JUNE 30, 1996 AND
SEPTEMBER 30, 1995
CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR
THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
AND THE NINE MONTHS ENDED JUNE 30, 1996 AND 1995
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1996 AND 1995
THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FURNISHED HAVE NOT BEEN AUDITED BY INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS, BUT REFLECT, IN
THE OPINION OF MANAGEMENT,ALL ADJUSTMENTS
NECESSARY FOR A FAIR PRESENTATION OF FINANCIAL
CONDITION AND THE RESULTS OF OPERATIONS FOR
THE PERIOD PRESENTED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
OTHER INFORMATION
SIGNATURES
COMMUNITY FEDERAL BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
ASSETS
June 30, September 30,
1996 1995
CASH AND CASH EQUIVALENTS $4,511,776 $2,895,100
SECURITIES AVAILABLE FOR SALE, at fair value 76,452,721 25,124,584
INVESTMENT SECURITIES, fair value of $12,258,129 at
September 31, 1995 0 12,277,401
MORTGAGE-BACKED AND RELATED SECURITIES HELD
TO MATURITY, fair values of $4,652,129 and
$21,243,233, respectively 4,810,346 21,559,367
LOANS RECEIVABLE, net 113,615,685 97,988,023
PREMISES AND EQUIPMENT 620,626 664,748
OTHER ASSETS 1,638,516 1,532,828
Total assets $201,649,670 $162,042,051
<FN>
The accompanying notes are an integral part of these statements.
</FN>
COMMUNITY FEDERAL BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, September 30,
1996 1995
DEPOSITS $130,498,954 $134,554,504
OTHER LIABILITIES 4,627,424 4,060,647
Total liabilities 135,126,378 138,615,151
STOCKHOLDERS' EQUITYP:
Peferred stock, no par, no shares issued,
2,000,000 autorized 0 0
Common stock, par $.01 per share, 4,628,750 issued
and outstanding, 10,000,000 authorized 46,288 0
Additional paid-in capital 44,962,526 0
Retained earnings 22,524,548 21,030,744
Unrealized gain on securities and mortgage-backed
securities available for sale, net 2,621,931 2,396,156
Unearned ESOP compensation (3,632,000) 0
Total stockholders' equity 66,523,292 23,426,900
Total liabilities and stockholders' equity $201,649,670 $162,042,051
<FN>
The accompanying notes are an integral part of these statements.
</FN>
COMMUNITY FEDERAL BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Nine Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
INTEREST INCOME:
Interest and fees on loans $2,186,699 $1,757,267 $6,279,311 $5,096,109
Interest and dividends on securities 506,100 499,520 1,451,640 1,436,194
Interest on mortgage-backed and
related securities 814,611 523,849 1,797,389 1,581,181
Total interest income 3,507,410 2,780,636 9,528,339 8,113,484
INTEREST EXPENSE:
Interest on deposits 1,650,879 1,604,417 5,271,920 4,408,147
Other interest expense 0 50,109 18,936 105,926
Total interest expense 1,650,879 1,654,526 5,290,856 4,514,073
PROVISION FOR LOAN LOSSES 5,000 10,000 20,000 20,000
Net interest income after
provision for loan losses 1,851,531 1,116,110 4,217,484 3,579,411
NONINTEREST INCOME:
Deposit fees 6,530 12,059 27,554 31,474
Loan servicing fees 43,707 33,974 120,893 82,096
Other income 2,759 12,566 83,104 12,672
Total noninterest income 52,996 58,599 231,552 126,242
NONINTEREST EXPENSE:
Compensation and benefits 343,435 248,655 851,534 626,501
Occupancy and equipment 30,799 24,510 88,116 72,969
Deposit insurance expense 81,580 75,138 235,154 230,071
Other operating expense 119,420 73,052 332,955 317,735
Total noninterest expense 575,234 421,355 1,507,758 1,247,275
Income before income taxes 1,329,294 753,354 2,941,277 2,458,378
PROVISION FOR INCOME TAXES 484,116 278,600 1,100,316 939,000
NET INCOME $845,177 $474,754 $1,840,961 $1,519,378
EARNINGS PER SHARE $0.18 $0.40
SHARES OUTSTANDING LESS UNALLOCATED ESOP 4,265,550 4,265,550
<FN>
The accompanying notes are an integral part of these statements.
</FN>
COMMUNITY FEDERAL BANCORP, INC.
STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED
JUNE 30, 1996 AND 1995
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,840,961 $1,519,378
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 57,800 17,411
Deferred loan fees 66,891 45,061
Accreation of discounts, net (592,962) (84,079)
Provision for loan losses 20,000 20,000
Gain on sale of securities, net (53,711) 0
Changes in assets and liabilities:
Increase (Decrease) in other assets 21,322 (462,930)
Increase in interest and dividends receivable (221,880) (84,846)
Increase in other liabilities 1,239,018 921,302
Total adjustments 536,478 371,919
Net cash provided by operating activities 2,377,439 1,891,297
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities 9,503,608 1,047,259
Proceeds from sales of securities 1,454,596 1,000,000
Principal collections and maturities on mortgage-
backed and related securities 3,935,595 2,061,901
Purchase of property and equipment (13,678) (48,332)
Loan (originations) and principal repayments, net (15,528,687) (8,550,646)
Purchase of securities (35,990,256) (52,200)
Net cash used by investing activities (36,638,822) (4,542,018)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in customer deposits, net (4,055,550) 270,823
Dividends paid (347,157) 0
(Decrease) increase in advances from borrowers for
taxes and insurance (96,048) (85,972)
Net change in FHLB advances (1,000,000) 3,000,000
Net proceeds from issuance of common stock 41,376,814 0
Net cash provided by financing activities 35,878,059 3,184,851
Net increase in cash and cash equivalents 1,616,676 534,130
CASH AND CASH EQUIVALENTS, beginning of year 2,895,100 4,420,082
CASH AND CASH EQUIVALENTS, end of period $4,511,776 $4,954,212
<FN>
The accompanying notes are an integral part of these statements.
</FN>
COMMUNITY FEDERAL BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Community Federal Bancorp, Inc. (The "Company") was incorporated in the
State of Delaware on November 22, 1995, for the purpose of becoming a
holding company to own all of the outstanding capital stock of Community
Federal Savings Bank (the "Bank"), an existing Stock Bank which was 100%
owned by Community Federal Mutual Holding Company (the"MHC"). Upon the
conversion from a federally chartered mutual holding company form of
organization to a federally chartered stock savings association (the
"Conversion"), the MHC was dissolved.
The accompanying unaudited condensed consolidated financial statements as
of June 30, 1996, and for the three and nine month periods then ended,
include the accounts of the Company and the Bank. All significant
intercompany transactions and accounts have been eliminated in
consolidation.
The condensed consolidated financial statements were prepared
by the company without an audit, but in the opinion of
management, reflect all adjustments necessary for the fair
presentation of financial position and results of operations
for the three and nine month periods ended June 30, 1996 and
1995. Results of operations for the current interim period
are not necessarily indicative of results expected for the
fiscal year ended September 30, 1996. While certain
information and footnote disclosures normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and
Exchange commission, management believes that the disclosures
herein are adequate to make the information presented not
misleading. These condensed consolidated financial
statements should be read in conjunction with the
consolidated financial statements and notes thereto for the
year ended September 30, 1995. The accounting policies
followed by the Bank are set forth in the summary of
significant accounting policies in the Bank's September 30,
1995 consolidated financial statements.
2. STOCK CONVERSION
On March 14, 1996, the Conversion to a federally chartered
stock savings bank through amendment of its charter,
dissolution of the MHC, and issuance of common stock to the
company was completed. Related thereto, the Company sold
4,628,750 shares of common stock, par value $.01 per share,
at an initial price of $10 per share in subscription and
community offerings. Costs associated with the Conversion
were approximately $1,300,000 including underwriting fees.
These conversion costs were deducted from the gross proceeds
of the sale of the common stock.
In connection with the Conversion, the Company has
established an employee stock ownership plan (the "ESOP").
The ESOP purchased approximately 8%, or 363,200 shares, of
the total shares of common stock sold. The company lent
$3,632,000 to the ESOP for the purchase of the shares of
common stock. Unearned compensation for the ESOP was charged
to stockholders' equity and is reduced ratably in connection
with principal payments under the terms of the Plan.
Within one year following the Conversion, and subject to
shareholder approval, the Company is expected to implement
the Management Recognition Plan, under which employees could
be awarded an aggregate amount of shares of common stock
equal to 4% of the shares issued in the Conversion (185,150
shares of common stock) and the Stock Option Plan, under
which employees and directors could be granted options to
purchase an aggregate amount of shares of common stock equal
to 10% of the shares issued in the Conversion at exercise
prices equal to the market price of the common stock on the
date of grant.
3. PRO FORMA EARNINGS PER SHARE
Earnings per share is presented in the accompanying
statements of income for the three and nine months ended June
30, 1996 on a retroactive basis as if the 4,628,750 shares,
less any unallocated ESOP shares, had been outstanding during
the entire three and nine month periods ended June 30, 1996.
4. CONTINGENCIES
Congress is presently considering proposals for
recapitalizing the Savings Association Insurance Fund
("SAIF"). Many of these proposals contemplate a one-time
payment approximating 85 basis points on SAIF insured
deposits as of a measurement date. The effect on the Company
of such an assessment would be a one-time charge to earnings
of approximately $1,200,000 based on current deposits.
5. RECENTLY ENACTED LEGISLATION
On August 2, 1996 Congress passed the Small Business Job
Protection Act that if signed by the President into law, will
among other things, repeal the tax bad debt reserve method
for thrifts effective for taxable years beginning after
December 31, 1995. As a result, thrifts must recapture into
taxable income the amount of their post-1987 tax bad debt
reserves over a six-year period beginning after 1995. This
recapture can be deferred for up to two years if the thrift
satisfies a residential loan portfolio test. The Bank is
expected to recapture a portion of its tax bad debt reserves
into taxable income over six years as a result of this new
law. The recapture will not have any effect on the Bank's
financial statements because the related tax expense has
already been accrued.
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
on March 25, 1996, Community Federal Bancorp, Inc. (The
"Company") completed the sale of 4,628,750 shares of its common
stock in an initial public offering at a price of $10.00 and
simultaneously acquired the shares of common stock of Community
Federal Savings Bank (the "Bank") in connection with the mutual
to stock conversion (the "Conversion"). Costs associated with
the conversion were approximately $1,300,000. Prior to March 25,
1996, the Company had not issued any stock, had no assets or
liabilities, and had not engaged in any business activities other
than of an organizational nature. Accordingly, the financial
data for periods prior to March 24, 1996 included herein reflect
the operations of the Bank only.
Comparisons of Financial Conditions at June 30, 1996 and
September 30, 1995
Total assets increased by $39.6 million, or 24.4%, from $162
million at September 30, 1995 to $201.6 million at June 30, 1996.
The increase in total assets was primarily attributed to a $22.3
million increase in investments, a $15.6 million increase in
loans receivable, and $3.4 million increase in cash. The asset
growth was primarily funded by the net proceeds received by the
Company from its initial public offering.
Total deposits decreased by $4 million from $134.5 million at
September 30, 1995 to $130.5 million at June 30, 1996. The
decrease was primarily attributed to deposits being used by
customers to purchase stock in the Company's initial public
offering.
As future discussed above, equity increased significally over the
prior year as a result of the receipt of $41.4 million in net
proceeds received in the initial public offering.
Comparison of Results of Operations for the Three Months Ended
June 30, 1996 and 1995
The company reported net income for the three months ended June
30, 1996 of $845,000 as compared to $475,000 for the three months
ended June 30, 1995. The increase in income for the three months
ended June 30, 1996 was due mainly to an increase in net interest
income.
Net Interest Income
Net interest income for the three months ended June 30, 1996
amounted to $1.9 million as compared to $1.1 million for the
three months ended June 30, 1995. Total interest income
increased $727,000 during the quarter ended June 30, 1996 as
compared to the same three month period of the prior year. This
increase resulted primarily from increased interest and fees on
the higher average balance in earning assets discussed above.
Total interest expense decreased only slightly during the third
quarter of 1996 compared to the same three month period of the
previous year. The increase in interest expense on deposits was
offset by the decrease in interest expense on FHLB advances.
Provision for Loan Losses
A $5,000 provision for loan losses was made during the third
quarter of 1996 to correspond with the volume in the mortgage and
consumer loan portfolio, compared to a $10,000 provision for loan
losses during the comparable 1995 third quarter. This adjustment
reflects management's estimates which took into account
historical experience, the amount of nonperforming assets, and
general economic condition. Total nonperforming assets at June
30, 1996 were $812,000 compared to $919,000 at June 30, 1995.
The allowance for loan losses at June 30, 1996 was $572,000
compared to $542,000 at June 30, 1995.
Noninterest Income
Noninterest income decreased $6,000 from $59,000 for the three
months ended June 30, 1995 to $53,000 for the three months ended
June 30, 1996.
Noninterest Expense
Noninterest expense increased $154,000 from $421,000 for the
three months ended June 30, 1995 to $575,000 for the three months
ended June 30, 1996. Chief reasons for the increase were the
increase in compensation expense associated with the Employee
Stock Ownership plan ("ESOP") and the additional staffing of the
consumer lending department.
Provision for Income Tax
Income tax expense for the three months ended June 30, 1996
increased $205,000 to $484,000 as compared to income tax expense
of $279,000 for the three months ended June 30, 1995. This
increase is the result of the increase in income before income
taxes.
Comparisons of Results of Operations for the Nine Months Ended
June 30, 1996 and 1995.
The company reported net income for the nine months ended June
30, 1996 of $1.8 million as compared to $1.5 million for the nine
months ended June 30, 1995. The increase was due mainly to an
increase in net interest income.
Net Interest Income
Net interest income for the nine months ended June 30, 1996
amounted to $4.2 million as compared to $3.6 million for the nine
months ended June 30, 1995. The increase resulted from growth in
volume of earning assets,funded by the proceeds of the initial
public offering. The resulting $1.4 million increase in interest
income was partially offset by a $777,000 increase in interest
expense.
Provisions for Loan Losses
A $20,000 provision for loan losses was made during the nine
months ended June 30, 1996, consistent with the $20,000 provision
made during the nine months ended June 30, 1995. This adjustment
reflects management's estimates which took into account
historical experience, the amount of nonperforming assets, and
general economic conditions.
Noninterest Income
Noninterest income increased by $106,000 from $126,000 for the
nine months ended June 30, 1995 to $232,000 for the nine months
ended June 30, 1996. This increase was primarily due to a gain
on sale of securities.
Noninterest Expense
Noninterest expense increased by $300,000 from $1.2 million for
the nine months ended June 30, 1995 to $1.5 million for the nine
months ended June 30, 1996. The increase was primarily due to an
increase in compensation expense associated with ESOP and the
additional staffing of the consumer lending department.
Provision for Income Tax
Income tax expense for the nine months ended June 30, 1996
increased by $161,000 to $1.1 million as compared to the income
tax expense of $939,000 for the nine months ended June 30, 1995.
This increase was due to the overall increase in income before
income taxes.
Capital Resources
The Bank's primary sources of funds are customer deposits,
repayments of loan principal, and interest from loans and
investments. While scheduled principal repayments on loans and
mortgage-backed securities are a relatively predictable source of
funds, deposit flows, and loan prepayments are greatly influenced
by general interest rates, economic conditions, and competition.
The Bank manages the pricing of its deposits to maintain a
desired deposit balance. In addition, the Bank invests in short
term interest-earning assets which provide liquidity to meet
lending requirements.
The Bank is required to maintain certain levels of regulatory
capital. At June 30, 1996, the Bank was in compliance with all
regulatory capital requirements.
SAIF Premium Disparity
As a result of a recent reduction by the FDIC of deposit
insurance rates applicable to commercial banks, savings
institutions could be at a significant disadvantage in competing
with banks. Generally, commercial banks are insured by and pay
their premiums to the Bank Insurance Fund ("BIF") and savings
associations are insured by and pay their premiums to the Savings
Association Insurance Fund ("SAIF"). Both BIF and SAIF members
had been paying deposit insurance premiums at the same rates
which ranged form 0.23% for the most highly rated institutions to
0.31% for the lowest rated institutions. On August 8, 1995, the
FDIC adopted a new assessment rate schedule for deposits subject
to assessment by the BIF. This schedule established assessment
rates ranging from 0.04% for well capitalized institutions in
Subgroup A to 0.31% for undercapitalized institutions in Subgroup
C. On November 14, 1995, the BIF assessment rate schedule was
further revised to a statutory minimum of $2,000 annually for
well capitalized institutions in Subgroup A to 0.027% of deposits
for undercapitalized institutions in Subgroup C. These revisions
to the BIF assessment schedule created a substantial disparity in
the deposit insurance premiums paid by SAIF and BIF members and
places SAIF-insured institutions such as the Bank at a
significant competitive disadvantage as compared to BIF-insured
institutions.
Legislation before the U.S. Congress provides for a one-time
assessment, currently estimated at between 0.85% 0.90% of insured
deposits, to fully recapitalize the SAIF. It is unknown whether
this legislation will be enacted or whether premiums for either
BIF or SAIF members will be adjusted in the future by the FDIC or
by legislative action. If a special assessment as described
above were to be required, it would result in a one-time charge
to the Bank currently estimated to be $1.2 million pretax,
assuming a 0.90% assessment based upon deposits held at March 31,
1995. If such a special assessment were required and the SAIF
were fully recapitalized, it could have the effect of reducing
the Association's future deposit premiums to the SAIF, thereby
increasing net income in future periods from that which would
otherwise be reported.
The proposed legislation additionally prohibits the use of the
percentage-of-taxable-income method for future calculation of bad
debt reserves for purposes of the federal income tax. It also
provides for the merger of the SAIF and BIF into a single Deposit
Insurance Fund effective January 1, 1998 if no insured depository
institution is a savings association on that date.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company and any subsidiaries may be a
party to various legal proceedings incident to its or their
business. At June 30, 1996, there were no legal proceedings to
which the Company or any subsidiary was a party, or to which any
of their property was subject, which were expected by management
to result in a material loss.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Exhibits 27. Financial Data Schedule
B. Reports on Form 8-K
No reports have been filed on form 8-K during this
quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
COMMUNITY FEDERAL BANCORP, INC.
Date: August 15, 1996 (S) Jim Ingram
Jim Ingram, President
and Chief Executive Officer
Date: August 15, 1996 (S) Sherry McCarty
Sherry McCarty, Controller
and Principal Financial Officer