UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OR THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
Commission File Number: 1-13964
COMMUNITY FEDERAL BANCORP, INC.
(Exact name of small business issuer
as specified in its charter)
Delaware 63-086536
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
333 Court Street, Tupelo, Mississippi 38802
(Address of principal executive offices) (Zip Code)
The registrants's telephone number,
including area code: (601)842-3981
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
The registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the past 12 months and (2) has been subject to such
filing requirements for the past 90 days.
Disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained in this form, and disclosure
will not be contained, to the best of the registrant's
knowledge, in the definitive proxy statement incorporated by
reference in
Part III of this Form 10-K.
The registrant's revenues for its most recent fiscal year were
$2,148,258.
The aggregate market value of the registrant's outstanding
common stock held by non-affiliates of the registrant at
September 30, 1996 was approximately $66,728,914 (based on
3,954,306 shares at the most recent trading price of which
management was aware $16.875 on December 17, 1996) (for this
purpose, the registrant's directors and executive officers and
stock benefit plans and trusts have not been deemed to be non-affiliates).
The total number of outstanding shares of the registrant's
common stock at September 30, 1996 was 4,628,750.
Transitional small business disclosure format: No.
DOCUMENTS INCORPORATED BY REFERENCE
(1)Portions of the Proxy Statement for the Registrant's 1996
Annual Meeting of Stockholders (the "Proxy Statement") are
incorporated by reference in Part III of this form.
(2)Portions of the Registrants's Annual Report of Stockholders
for fiscal year 1996 are incorporated by reference in Part III
of this form.
ITEM 1.--DESCRIPTION OF BUSINESS
General
The Community Federal Bancorp, Inc. (the "Company") was
incorporated under the laws of the State of Delaware in
November 1995 at the direction of management of Community
Federal Savings Bank (the "Savings Bank") for the purpose of
serving as a savings institution holding company of the
Savings Bank upon the acquisition of all of the capital stock
issued by the Savings Bank upon the consummation of its
reorganization from a mutual holding company organization to a
stock holding company organization (the "Conversion"). Before
the Conversion, the Company did not engage in any material
operations. After the Conversion, the Company's principal
assets have been the outstanding capital stock of the Savings
Bank, a portion of the net proceeds of the Conversion and a
note receivable from the Company's Employee Stock Ownership
Plan ("ESOP"), and the Company's principal business has been
the business of the Savings Bank.
The holding company structure permits the Company to expand
the financial services offered through the Savings Bank. As a
holding company, the Company has greater flexibility than the
Savings Bank to diversify its business activities through
existing or newly formed subsidiaries or through acquisition
or merger with other financial institutions. The Company is
classified as a unitary savings institution holding company
and is subject to regulation by the Office of Thrift
Supervision ("OTS"). As long as the Company remains a unitary
savings institution holding company, under current law the
Company could diversify its activities in such a manner as to
include any activities allowed by law or regulation to a
unitary savings institution holding company.
The Company's executive offices are located at 333 Court
Street, Tupelo, Mississippi 38802, and it telephone number is
(601) 842-3981.
The Savings Bank is a federally chartered savings bank that
was organized on August 25, 1994 as a subsidiary of the Mutual
Holding Company. The Savings Bank and its predecessors have
conducted business in Tupelo, Mississippi and surrounding
communities through an office in downtown Tupelo since 1933.
At September 30, 1996, the Savings Bank had $204.0 million of
total assets, $136.9 million of total liabilities, including
$131.7 million of deposits, and $67.1 million of equity.
The Savings Bank is primarily engaged in attracting deposits
from the general public and using that and other available
sources of funds to originate loans secured by one-to-four
family residences (one-to-four family units) primarily located
in Lee County, Mississippi and portions of surrounding counties
(the "Primary Market Area"). Such loans amounted to $102.0
million or 86.7% of the Savings Bank's total net loan
portfolio, at September 30, 1996. To a lesser extent, the
Savings Bank originates other mortgage loans secured by
multi-family and non-residential real estate, which amounted
to $7.2 million or 6.1% of the total net loan portfolio, at
September 30, 1996 and construction loans for one-to-four
family and multi-family residences which amounted to $3.4
million or 2.8% of the Savings Bank's total net loan portfolio
as of that same date. In addition, the Savings Bank also
offers loans to local businesses and automobile loans to
individuals. As of September 30, 1996, the commercial loans
amounted to $3.3 million or 2.8% of the Savings Bank's total
net loan portfolio. The automobile loans together with loans
secured by savings accounts and other consumer loans had a
total balance of $4.2 million or 3.6% of the Savings Bank's
total net loan portfolio as of September 30, 1996. The
Savings Bank also has an investment portfolio consisting of
mortgage-backed securities which are insured by federal
agencies, and collateralized mortgage obligations, U.S.
government and agency obligations, obligations of the State of
Mississippi and its political subdivisions, mutual funds and
Federal Home Loan Bank (" FHLB"), Federal National Mortgage
Association (" FNMA"), and Federal Home Loan Mortgage Corporation
(" FHLMC") stock. As of September 30, 1996, the
carrying value of investments that management has the intent
and ability to hold until maturity was $4.8 million and the
carrying value of investments that were available for sale was
$75.1 million. In addition, as of that same date, the Savings
Bank's aggregate cash and interest-bearing deposits in other
banks totaled $4.2 million.
Market Area
The Savings Bank generally conducts business through its main
office located in Tupelo, Mississippi, the county seat of Lee
County, Mississippi. Tupelo is located in northeastern
Mississippi, approximately 90 miles southeast of Memphis,
Tennessee. Tupelo's population was 30,685 in 1990, an
increase from 23,905 in 1980. Between 1980 and 1990, Lee
County grew from 57,061 to 65,581 people. This section of the
state has grown 13% faster in population than the remainder of
Mississippi due to its diverse economic base. A diversified
manufacturing base of over 200 companies is represented in Lee
County alone, which is considered part of the Mid-South region
that includes southern Tennessee and northeastern Alabama.
Manufacturing, product marketing and convention business,
health care, agriculture, entertainment, and recreation are
significant sectors of economic activity.
Lee County is one of three counties in Mississippi that have
shown consistent growth in the manufacturing sector from 1960
to 1991. During that period Lee County experienced a 220%
increase in manufacturing jobs, totaling 15,720 in 1991. In
Lee and the surrounding counties of Chickasaw, Itawamba,
Monroe, Pontotoc, Prentiss, and Union, manufacturing jobs
provided 54.7% of total employment in 1950 and 50.1% in 1991.
Non-manufacturing jobs increased 808% during the period of
1950 to 1991. Major employers in Lee County include Tecumseh,
a Fortune 500 company, which operates two plants in the county
producing air conditioning and refrigerator compressors,
Action Industries, a furniture manufacturer, and Cooper Tire &
Rubber Company and North Mississippi Medical Center, the
largest rural hospital in the United States. The medical
center is the largest employer in the county. Retail sales
also provide a strong component in the economy, totaling $882
million in 1992. A large shopping mall, the Mall at Barnes
Crossing, had 6.1 million visitors in 1992.
Lee County is the leading upholstered furniture manufacturing
region in the nation and Tupelo acts as host to the annual
Furniture Market, the second largest furniture exposition in
the United States. A 1.2 million square foot Market
Exhibition Space, a 9,200 seat Coliseum, and the Livestock
Arena help accommodate those attending furniture,
entertainment and agricultural activities. Moreover, Tupelo
has a modern airport capable of receiving air carrier service
from Atlanta and Memphis.
The North Mississippi Medical Center, with more than 190
doctors representing 41 medical and surgical specialties, is
located in Tupelo. The medical center is the State's largest
hospital and is one of only two hospitals in the South
affiliated with the National Cancer Institute.
In agriculture, Lee County economic activity is diversified
among forestry products (chipmills, saw mills, and plywood
products), cattle, cotton, soybean, poultry and egg
production, and milk production. Forestry represents the
largest segment of agricultural activity and represented $60.3
million in production in 1991.
In education, the Tupelo School District was the tenth largest
in the State in 1992. By comparison, in 1985, the district
was the 18th largest in the State. More than half of the
certified school system staff hold masters degrees or better.
A branch of the University of Mississippi is located in Tupelo
providing accredited business and educational degree programs
on the graduate and undergraduate level. Neighboring Itawamba
Community College provides vocational programs. It is one of
ten charter members of the National Coalition of Advanced
Technology Centers in the nation. The Tupelo-Lee County
Vocational Technical Center features modern vocational
training in electronics, business computer applications and
computer-assisted drafting. Tupelo is the home to the
Technology Center.
Lending Activities
General. As a federally chartered savings association, the
Savings Bank has general authority to originate and purchase
loans secured by real estate located throughout the United
States. Notwithstanding this nationwide lending authority,
substantially all of the mortgage loans in the Savings Bank's
portfolio are secured by properties located in its Primary
Market Area.
A savings association generally may not make loans to one
borrower and related entities in an amount which exceeds 15%
of its unimpaired capital and surplus, although loans in an
amount equal to an additional 10% of unimpaired capital and
surplus may be made to a borrower if the loans are fully
secured by readily marketable securities. At September 30,
1996, the Savings Bank's loans-to-one borrower limit was $6.8
million and its five largest loans or groups of loans-to-one
borrower, including related entities, were $1,960,000,
$1,759,000, $1,540,000, $953,000, and $839,000. Each of these
loans is secured by real estate, a substantial portion of
which is rental property. All of these loans or groups of
loans were performing in accordance with their terms at
September 30, 1996.
Loan Portfolio Composition. The following table sets forth
the composition of the Savings Bank's loan portfolio by type
of loan at the dates indicated:
September 30,
1996 1995 1994
Amount % Amount % Amount %
Mortgage Loans:
One-to-four family
residential 102,021 86.73 86,716 88.50 75,811 89.97
Multi-family and
non-residential 7,165 6.09 5,946 6.07 6,728 7.98
Construction loans 3,337 2.84 3,310 3.38 1,120 1.33
Total mortgage loans 112,523 95.66 95,972 97.94 83,659 99.28
Commercial Loans: 3,253 2.77 1,537 1.57 0 0.00
Consumer Loans:
Automobile 1,318 1.12 1,072 1.09 720 .85
Savings accounts 1,369 1.15 1,052 1.07 1,108 1.32
Other 1,524 1.30 529 .54 0 0.00
Total consumer loans 4,211 3.57 2,653 2.71 1,828 2.17
Total loans 119,987 102.00 100,162 102.22 85,487 101.45
Less:
Loans in process 1,356 1.15 1,279 1.31 429 .51
Unearned discounts and
net deferred loan
origination fees 428 0.36 343 .35 267 .32
Allowance for loan losses 572 0.49 552 .56 522 .62
Loans receivable, net 117,631 100.00 97,988 100.00 84,269 100.00
September 30,
1993 1992
Amount % Amount %
Mortgage Loans:
One-to-four family
residential 75,246 89.13 76,248 90.07
Multi-family and
non-residential 6,675 7.91 6,154 7.27
Construction loans 686 .81 528 .62
Total mortgage loans 82,607 97.85 82,930 97.96
Commercial Loans 0 0 0 0
Consumer Loans:
Automobile 1,533 1.82 1,000 1.18
Savings accounts 1,328 1.57 1,343 1.59
Other 0 0 0 0
Total consumer loans 2,861 3.39 2,343 2.77
Total loans 85,468 101.24 85,273 100.73
Less:
Loans in process 302 .36 50 .06
Unearned discounts and
net deferred loan
origination fees 237 .28 166 .20
Allowance for loan
losses 500 .60 400 .47
Loans receivabe, net 84,429 100.00 84,657 100.00
Contractual Principal Repayments and Interest Rates. The
following table sets forth certain information at
September 30, 1996 regarding the dollar amount of loans
maturing in the Savings Bank's portfolio, based on the
contractual terms to maturity, before giving effect to net
items. Demand loans, loans having no stated schedule of
repayments and no stated maturity and overdrafts are reported
as due in one year.
Over Over Over Over
3 Months 6 Months 1 Year 3 Years
3 Months Through Through Through Through
Or Less 6 Months 1 Year 3 Years 5 Years
(In thousands)
Mortgage Loans:
Adjustable 1 0 7 72 161
Fixed 2,427 2,176 803 1,096 1,304
Consumer: 986 1,298 308 555 898
Commercial: 20 0 0 203 693
Total 3,434 3,474 1,118 1,926 3,147
Over
Five years Total
(In Thousands)
Mortgage Loans:
Adjustable 56,325 56,566
Fixed 48,151 55,957
Consumer: 75 4,211
Commercial: 2,337 3,253
Total 106,888 119,987
The following table sets forth the dollar amount of all loans,
before net items, due after one year from September 30, 1996
which have fixed interest rates or which have adjustable
interest rates.
Fixed Adjustable
Rates Rates Total
(In thousands)
One-to-four family residential 45,838 54,455 100,293
Multi-family and non-residential 4,713 2,103 6,816
Consumer 1,619 0 1,619
Commercial 3,233 0 3,233
Total 55,403 56,558 111,961
Scheduled contractual amortization of loans does not reflect
the actual term of the Savings Bank's loan portfolio. The
average life of loans is substantially less than their
contractual terms because of prepayments and due-on-sale
clauses, which give the Savings Bank the right to declare a
conventional loan immediately due and payable in the event,
among other things, that the borrower sells the real property
subject to the mortgage.
Originations, Purchases, Servicing, and Sales of Loans. The
lending activities of the Savings Bank are subject to written,
non-discriminatory underwriting standards and loan origination
procedures established by the Savings Bank's Board of
Directors and management. Loan originations are obtained by a
variety of sources, including referrals from real estate
brokers, developers, builders, existing customers, newspaper,
radio, periodical advertising, and walk-in customers. Loan
applications are taken by lending personnel, and the loan
processing department supervises the acquisition of credit
reports, appraisals, and other documentation involved with a
loan. Property valuations are generally prepared for the
Savings Bank by a qualified independent appraiser
selected from a list approved by the Savings Bank's Board of
Directors. The Savings Bank generally relies on an attorney's
opinion of title that each loan collateralized by real
property has been properly secured. Hazard insurance is also
required on all secured property and flood insurance is
required if the property is within a designated flood plain.
In addition, the Savings Bank requires credit life insurance
if a borrower has no or inadequate life insurance, except in
cases where such insurance is generally unavailable because of
a borrower's age.
The Savings Bank's loan approval process is intended to assess
the borrower's ability to repay the loan, the viability of the
loan and the adequacy of the value of the property that will
secure the loan. A loan application file is first reviewed by
a loan officer of the Savings Bank and then, in most cases, is
submitted for approval to the Loan Committee. In addition,
the Savings Bank's President and Chief Executive Officer has
been delegated authority to approve any loan authorized under
the Savings Bank's real estate lending policy.
The Savings Bank originates substantially all of the mortgage
loans in its portfolio and holds them until maturity. In
fiscal 1994 and 1993, the Savings Bank purchased $900,000 and
$1 million of automobile loans, respectively, to diversify its
loan portfolio and to shorten the term of its average
contractual maturity. It had no purchases of consumer or
other loans in fiscal 1996 or 1995, but has instead
established a consumer lending department which originated
$5.3 million and $3.4 million of consumer loans in fiscal 1996
and 1995, respectively. It also began offering commercial
loans during fiscal 1995 and originated $2.1 million and $1.6
million of commercial loans during fiscal 1996 and 1995,
respectively. During the three-year period ended September
30,1996, the Savings Bank had loan sales of $352,000
consisting of first mortgage loans with terms of 30 years and
secured by one-to-four family residences.
During the 1980s, the Savings Bank sold a small percentage of
the mortgage loans it originated to FNMA but retained the
servicing on such loans. The Savings Bank no longer actively
sells loans with servicing rights retained. As a result, the
servicing portfolio has decreased from $5.7 million at
September 30, 1993 to $2.2 million at September 30, 1996 due
to principal repayments. See Note 5 of the Notes to Financial
Statements.
The following table shows total loans originated, loan
reductions, and the net increase in Community's loan portfolio
during the periods indicated:
Year ended September 30,
1996 1995 1994 1993 1992
(In thousands)
Loan Originations:
One-to-four family
residential 34,978 19,673 20,821 22,643 28,020
Multi-family and
non-residential 635 0 2,062 544 2,766
Construction 8,199 5,478 1,346 1,137 1,397
Commercial 2,149 1,608 0 0 0
Consumer 5,345 3,425 905 1,502 2,333
Total loans originated 51,306 30,184 25,134 25,862 34,516
Purchases: 0 0 900 1,000 1,000
Total loans originated
and purchased 51,306 30,184 26,034 26,826 35,516
Sales and Loan Principal
Repayments:
Loans sold proceeds 0 220 130 0 0
Loan repayments 31,629 17,201 26,243 26,826 32,136
Total loans sold proceeds
and loan principal
repayments 31,629 17,421 26,373 26,649 32,136
Loan originations
(repayments), net 19,677 12,763 (339) 177 3,380
Increase (decrease) due
to other items, net (34) 956 179 (405) (273)
Net increase (decrease)
in net loan portfolio 19,643 13,719 (160) (228) 3,107
One-to-Four Family Residential Loans. The primary lending
activity of the Savings Bank is the origination of loans
secured by first mortgage liens on one-to-four family
residences. At September 30, 1996, $102.0 million or 86.7% of
the Savings Bank's total net loan portfolio consisted of
one-to-four family first mortgage residential loans. As of
such date the average balance of the Savings Bank's
one-to-four family mortgage loans was $47,519.
The loan-to-value ratio, maturity, and other provisions of the
loans made by the Savings Bank generally have reflected the
policy of making less than the maximum loan permissible under
applicable regulations, in accordance with sound lending
practices, market conditions, and underwriting standards
established by the Savings Bank. While it has been the
Savings Bank's practice in most cases to require a
loan-to-value ratio of 80%, the Savings Bank's lending policy
on one-to-four family residential mortgage loans generally
limits the maximum loan-to-value ratio to 85% of the lesser of
the appraised value or purchase price of the property. In
cases where loan-to-value ratios exceed 85%, the Savings Bank
requires private mortgage insurance.
The Savings Bank offers fixed-rate one-to-four family
residential loans with terms up to 15 years. Such loans are
amortized on a monthly basis with principal and interest due
each month and customarily include "due-on-sale" clauses.
While the Savings Bank reserves the right to enforce such a
clause in any case, it has been its practice to waive the
clause in most cases. As of September 30, 1996, approximately
99% of all of the Savings Bank's mortgage loan portfolio
consisted of conventional loans; the remainder are loans
insured by the Federal Housing Administration or partially
guaranteed by the Department of Veterans Affairs.
The Savings Bank is aware that there are inherent risks in
originating fixed-rate one-to-four family residential loans
for its portfolio, especially during periods of historically
low interest rates, but recognized the need to respond to
market demand for fixed-rate loans. To respond to these
market demands, the Savings Bank has emphasized 15-year
fixed-rate loans with an origination fee but no points and
only minimal closing costs. The Savings Bank also generally
confines its one-to-four family residential lending to its
Primary Market Area where it is more familiar with the details
of the real estate market and its knowledge of the local
economy allows it to better assess a borrower's ability to
repay a loan.
Since 1982, the Savings Bank has been offering adjustable-rate
loans in order to decrease the vulnerability of its operations
to changes in interest rates. All of the adjustable-rate
mortgage loans in its portfolio have interest rates that
adjust on an annual basis. The demand for adjustable-rate
loans in the Savings Bank's primary market area has been a
function of several factors, including the level of interest
rates, the expectations of changes in the level of interest
rates and the difference between the interest rates offered
for fixed-rate loans and adjustable-rate loans. The relative
amount of fixed rate and adjustable-rate residential loans
that can be originated at any time is largely determined by
the demand for each in a competitive environment. As interest
rates fluctuated since 1982, the demand for fixed- and
adjustable-rate loans has changed as the Savings Bank's
customers have preferred adjustable rates in a high
interest-rate environment and fixed-rate loans as interest
rates decreased. In order to continue to increase and then to
maintain a high percentage of adjustable-rate one-to-four
family residential loans, the Savings Bank has offered various
forms of adjustable-rate loans and in some cases has purchased
mortgage-backed securities and CMOs collateralized by
adjustable-rate mortgage loans. As a result, at September 30,
1996, $56.4 million, or 55.2%, of the one-to-four family
residential loans in the Savings Bank's loan portfolio (before
net items) consisted of adjustable-rate loans.
The Savings Bank's one-to-four family residential
adjustable-rate loans are fully amortizing loans with
contractual maturities of up to 30 years. These loans have a
fixed-rate of interest for up to three years and for the
remainder of the loan's term adjust annually in accordance
with a designated index. The Savings Bank currently offers an
adjustable-rate mortgage with a 2% limit on the rate
adjustment per period and a 6% limit on the rate adjustment
over the life of the loan. The Savings Bank's underwriting
standards for adjustable-rate mortgage loans require that it
assess a potential borrower's ability to make principal and
interest payments assuming a 2% increase in the interest rate
from the rate at the time of origination. The Savings Bank's
adjustable-rate loans are not convertible by their terms into
fixed rate loans, are assumable with the Savings Bank's
approval, do not contain prepayment penalties and do not
produce negative amortization.
Due to the generally lower rates of interest prevailing in
recent periods, the Savings Bank's ability to originate
adjustable-rate loans has decreased as consumer preference for
fixed-rate loans has increased. However, the Savings Bank has
continued to originate adjustable-rate one-to-four family
residential loans during this period by offering an
adjustable-rate loan with an origination fee but no points and
only minimal closing costs. As a result, even as consumer
preference for such loans decreased, adjustable-rate mortgage
loans represented $14.2 million or 40.7% of the Savings Bank's
total originations of one-to-four family residential loans
during the year ended September 30, 1996 as compared to 65%
and 43% of such originations for the years ended September 30,
1995 and 1994, respectively.
Adjustable-rate loans decrease the risks associated with
changes in interest rates but involve other risks, primarily
because as interest rates rise, the payment by the borrower
rises to the extent permitted by the terms of the loan,
thereby increasing the potential for default. At the same
time, the marketable of the underlying property may be
adversely affected by higher interest rates. The Savings Bank
believes that these risks, which have not had a material
adverse effect on the Savings Bank to date, generally are less
than the risks associated with holding fixed-rate loans in an
increasing interest rate environment.
Non-Residential Real Estate and Multi-Family Residential
Loans.
At September 30, 1996, $7.2 million or 6.1% of the
Savings Bank's total net loan portfolio, consisted of loans
secured by existing non-residential and multi-family
residential real estate. The Savings Bank's non-residential
and multi-family real estate loans include primarily loans
secured by small office buildings, family-type business
establishments and apartment buildings. All of the Savings
Bank's non-residential and multi-family real estate loans are
secured by properties located in the Savings Bank's Primary
Market Area. The average amount of the Savings Bank's
non-residential and multi-family real estate loans are secured
by properties located in the Savings Bank's Primary Market
Area. The average amount of the Savings Bank's
non-residential and multi-family real estate loans was
$298,000 at September 30, 1996 and the largest was $1.8
million. Originations of non-residential real estate and
multi-family residential real estate amounted to .52%, 0%, and
8.2% of the Savings Bank's total loan originations in fiscal
1996, 1995, and 1994, respectively.
The Savings Bank's non-residential and multi-family loans have
terms which range up to 25 years and loan-to-value ratios of
up to 80%. The Savings Bank originates both fixed-rate and
adjustable-rate non-residential and multi-family real estate
loans. As of September 30, 1996, $2.1 million, or 29% of the
Savings Bank's non-residential and multi-family residential
real estate loans had adjustable rates of interest. A
potential borrower must demonstrate that he or she has the
ability to make principal and interest payments assuming a 2%
increase in the interest rate from the rate at the time of
origination.
The Savings Bank requires appraisals of all properties
securing non-residential and multi-family residential real
estate loans. Appraisals are performed by an independent
appraiser designated by the Savings Bank and are reviewed by
management. In originating multi-family residential and
non-residential real estate loans, the Savings Bank considers
the quality and location of the real estate, the credit of the
borrower, cash flow of the project and the quality of
management involved with the property. Corporate loans
require the personal guaranty of the entity's controlling
shareholders. Hazard insurance is required as well as flood
insurance if the property is located in a designated flood
zone.
Multi-family residential and non-residential real estate
lending is generally considered to involve a higher degree of
risk than one-to-four family residential lending. Such
lending typically involves large loan balances concentrated in
a single borrower or groups of related borrowers. In
addition, the payment experience on loans secured by
income-producing properties is typically dependent on the
successful operation of the related real estate project and
thus may be subject to a greater extent to adverse conditions
in the real estate market or in the economy generally. The
Savings Bank generally attempts to mitigate the risks
associated with multi-family residential and non-residential
real estate lending by, among other things, lending only in
its Primary Market Area and lending only to individuals who
have an established relationship with the Savings Bank and/or
who have substantial ties to the community.
Construction Loans.
The Savings Bank makes construction loans
to individuals for the construction of their residences and to
developers for the construction of one-to-four family and
multi-family residences. Construction lending is generally
limited to the Savings Bank's Primary Market Area. At
September 30, 1996, construction loans amounted to $3.3
million or 2.8% of the Savings Bank's total net loan
portfolio. Construction financing is generally considered to
involve a higher degree of risk of loss than long-term
financing on improved, owner-occupied real estate because of
the uncertainties of construction, including possible delays
in completing the structure, the possibility of costs
exceeding the initial estimates and the need to obtain a
tenant or purchaser if the property will not be owner
occupied. In the event of a delay in the completion of the
construction, the Savings Bank may grant an extension, but
such extensions are generally conditioned upon the payment of
interest in full for the initial term.
Construction loans to individuals are separate from the
permanent financing on the structure. However, a borrower
only qualifies for a construction loan if he or she has
obtained a commitment for a permanent loan from the Savings
Bank at the end of the construction phase. The term of a
construction loan to an individual generally does not exceed
the greater of 180 days or the term of the permanent loan
commitment. Loan payouts occur only after an inspection by
the Savings Bank's appraiser of the site has been made and
documented by the Savings Bank. Payouts are based on the
percentage of the construction completed as of the inspection
date. Interest rates on construction loans to individuals are
based on current local economic conditions. The loan-to-value
ratio on such loans must be 80% or less of the appraised value
of the completed structure.
The majority of construction loans to developers are to
selected local developers with whom the Bank is familiar and
are for the construction of single-family dwellings on a
pre-sold or on a speculative basis. The Bank generally limits
to two the number of unsold houses which a developer may have
under construction in a project. Construction loans to
developers are generally made for a one- to two-year term
depending on the size and scope of the project. Payment of
accrual interest generally is required on at least a
semiannual basis and the amount of a loan is generally based
on the owner's equity in the property but may not exceed 80%
of appraised value or contract price. Loan proceeds are
disbursed in stages after inspection of the project indicates
that such disbursements are for expenses which have already
been incurred and which have added to the value of the
project.
Consumer Loans. Subject to the restrictions contained in
federal laws and regulations, the Savings Bank also is
authorized to make loans for a wide variety of personal or
consumer purposes. In order to broaden the mix of the retail
financial services the Savings Bank offers to its customers,
in fiscal 1995 the Savings Bank established a new department
that, among other things, originates consumer loans. The
Savings Bank's consumer loans consist primarily of automobile
loans originated by the Savings Bank during fiscal years 1996 and 1995,
and purchased by the Savings Bank during fiscal years 1994 and 1993 and
loans secured by savings accounts. Consumer loans at
September 30, 1996 were $4.2 million, or 3.6%, of the Savings
Bank's total net loan portfolio consisted of consumer loans.
As of September 30, 1996, the Savings Bank's consumer loans
also consisted of loans secured by accounts at the Savings
Bank which amounted to $1.4 million or 1.2% of its total net
loan portfolio. Such a loan is structured to have a term that
ends on the same date as the maturity date of the certificate
securing it or if secured by a passbook account has a
six-month term with a hold on withdrawals that would result in
the balance being lower than the loan balance. Typically
these loans require quarterly payments of interest only.
Consumer loans generally involve more credit risk than
mortgage loans because of the type and nature of the
collateral. In addition, consumer lending collections are
dependent on the borrower's continuing financial stability,
and thus are more likely to be adversely affected by job loss,
divorce, illness, and personal bankruptcy. In many cases,
because of the mobile nature of the collateral, it may not be
readily available in the event of a default. In other cases,
repossessed collateral for a defaulted consumer loan will not
provide an adequate source of repayment of the outstanding
loan balance because of improper repair and maintenance or
depreciation of the underlying security. The remaining
deficiency often does not warrant further substantial
collection efforts against the borrower.
Commercial Loans. Subject to the restrictions contained in
federal laws and regulations, the Savings Bank is authorized
to make secured and unsecured commercial business loans for
corporate and agricultural purposes, including issuing letters
of credit. At September 30, 1996, $3.3 million, or 2.8%, of
the Savings Bank's total net loan portfolio consisted of
commercial business loans, all of which were secured. The
Savings Bank began originating commercial business loans in
fiscal 1995 and they accounted for 4.2% of the total loan
originations during the year ended September 30, 1996.
Commercial business loans generally are deemed to entail
significantly greater risk than that which is involved with
more traditional real estate lending. The repayment of
commercial business loans typically are dependent on the
successful operations and income stream of the borrower. Such
risks can be significantly affected by economic conditions.
In addition, commercial lending generally requires
substantially greater oversight efforts compared to
residential real estate lending.
Loan Origination and Other Fees. In addition to interest
earned on loans, the Savings Bank receives loan origination
fees or "points" for originating loans. Loan points are a
percentage of the principal amount of the mortgage loan and
are charged to the borrower in connection with the origination
of the loan.
In accordance with SFAS No. 91, which deals with the
accounting for non-refundable fees and costs associated with
originating or acquiring loans, the Savings Bank's loan
origination fees and certain related direct loan origination
costs are offset, and the resulting net amount is deferred and
amortized as interest income over the contractual life of the
related loans as an adjustment to the yield of such loans. At
September 30, 1996, the Savings Bank had $428,000 of net loan
fees which had been deferred and are being recognized as
income over the estimated maturities of the related loans.
See Notes 1 and 5 of the Notes to the Consolidated Financial
Statements.
Non-Performing Assets. Beginning as of September 30, 1993,
the Savings Bank adopted a policy under which all loans are
reviewed on a regular basis and are placed on a non-accrual
status when, in the opinion of management, the collection of
additional interest is deemed insufficient to warrant further
accrual. Generally, the Savings Bank places all loans more
than 90 days past due on non-accrual status. When a loan is
placed on non-accruing status, total interest accrued to date
is reversed. Subsequent payments are either applied to the
outstanding principal balance or recorded as interest income,
depending on the assessment of the ultimate collectability of
the loan. A loan is returned to accrual status when, in
management's judgment, the borrower's ability to make periodic
interest and principal payments is in accordance with the
terms of the loan agreement.
Real estate acquired by the Savings Bank for foreclosure is
classified as real estate owned until such time as it is sold.
When such property is acquired it is recorded at the lower of
the recorded investment in the loan or fair value, less
estimated selling costs of disposition. The recorded
investment is the sum of the outstanding principal loan
balance plus any taxes due and acquisition costs associated
with the property. Any excess of the recorded investment
in the loan over the fair value of the underlying property
is charged to the allowance for loan losses at the time of
the loan foreclosure. Costs relating to improvement of property
incurred subsequent to the acquisition are capitalized, whereas costs
relating to holding the property are expensed. Valuations are
periodically performed by management and a provision for estimated losses
on real estate owned is charged to earnings when losses are
anticipated.
As of September 30, 1996, the Savings Bank's total
non-performing loans amounted to $717,000, or 0.61% of total
net loans, compared to $838,000, or 0.86% of total net loans,
at September 30, 1995.
The following table sets forth the amounts and categories of
Community's non-performing assets at the dates indicated.
Community had no troubled debt restructuring during the
periods shown on the table below:
September 30,
1996 1995 1994 1993 1992
Non-Accruing Loans:
One-to-four family
residential 717 715 560 894 0
Multi-family and
non-residential real estate 0 0 0 0 0
Construction 0 0 0 0 0
Commercial 0 0 0 0 0
Consumer 0 7 0 0 0
Accruing Loans Greater
Than 90 Days Delinquent:
One-to-four family
residential 0 116 203 121 963
Multi-family and
non-residential
real estate 0 0 0 0 0
Construction 0 0 0 0 0
Commercial 0 0 0 0 0
Consumer 0 0 0 0 0
Total non-performing
loans 717 838 763 1,015 963
Real estate owned(1): 0 139 141 164 0
Total non-performing
assets 717 977 904 1,179 963
Total non-performing
loans as a percentage
of total net loans .61% .86% .91% 1.20% 1.14%
Total non-performing
assets as a percentage
of total assets .35% .60% .58% .80% .68%
(1) Consists of real estate acquired by foreclosures.
Interest income foregone on non-accrual loans was not significant
for any period shown.
Classified Assets. Federal regulations require that each
insured savings association classify its assets on a regular
basis. In addition, in connection with examinations of
insured institutions, federal examiners have authority to
identify problem assets: "substandard," "doubtful," and
"loss." Substandard assets have one or more defined
weaknesses and are characterized by the distinct possibility
that the insured institution will sustain some loss if the
deficiencies are not corrected. Doubtful assets have the
weaknesses of substandard assets with the additional
characteristic that the weaknesses make collection or
liquidation in full on the basis of currently existing facts,
conditions and values questionable, and there is a high
possibility of loss. A loss classified asset is considered
uncollectible and of such little value that continuance as an
asset of the institution is not warranted. Another category
designated "special mention" also must be established and
maintained for assets which do not currently expose an insured
institution to a sufficient degree of risk to warrant
classification as substandard, doubtful or loss. Assets
classified as substandard or doubtful require the institution
to establish general allowances for loan losses. If an asset
or portion thereof is classified loss, the insured institution
must either establish specific allowances for loan losses in
the amount of 100% of the portion of the asset classified
loss, or charge-off such amount. General loss allowances
established to cover possible losses related to assets
classified substandard or doubtful may be included in
determining an institution's regulatory capital, while
specific valuation allowances for loan losses do not qualify
as regulatory capital. Federal examiners may disagree with an
insured institution's classifications and amounts reserved.
The Savings Bank's classified assets at September 30, 1996
consisted of $754,000 of loans classified as special mention,
$736,000 of loans classified as substandard and no loans
classified as doubtful or loss. As of September 30, 1996,
total classified assets amounted to 0.73% of total assets.
The following table sets forth the Savings Bank's classified
assets at the dates indicated:
September 30,
1996 1995 1994
Classification:
Special mention 754 984 507
Substandard 736 959 762
Doubtful 0 0 0
Loss 0 0 0
Total classified assets 1,490 1,943 1,269
Allowance for Loan Losses. It is management's policy to
maintain an allowance for estimated loan losses at a level
which management considers adequate to absorb losses inherent
in the loan portfolio at each reporting date. Management's
estimation of this amount includes a review of all loans for
which full collectability is not reasonably assured and
considers, among other factors, prior years' loss experience,
economic conditions, distribution of portfolio loans by risk
class and the estimated value of underlying collateral.
Although management believes the current allowance for loan
losses to be adequate, ultimate losses may vary from their
estimates; however, estimates are reviewed periodically and,
as adjustments become necessary, they are reported in earnings
in periods in which they become known.
At September 30, 1996, the Savings Bank's allowance for loan
losses was $572,000 compared to $552,000 at September 30,
1995. As of September 30, 1996, all of the Savings Bank's
allowance for loan losses was a general valuation allowance.
The following table sets forth the activity in Community's
allowance for loan losses during the periods indicated.
1996 1995 1994 1993 1992
(Dollars in thousands)
Allowance at beginning of period 552 522 500 400 210
Provisions 20 30 25 100 190
Charge-offs:
Mortgage loans:
One-to-four family residential 0 0 12 0 0
Multi-family and non-residential
real estate 0 0 0 0 0
Construction 0 0 0 0 0
Total mortgage loans 0 0 12 0 0
Commercial loans 0 0 0 0 0
Consumer loans:
Savings accounts 0 0 0 0 0
Automobile 0 0 0 0 0
Total consumer loans 0 0 0 0 0
Total charge-offs 0 0 12 0 0
Recoveries 0 0 0 0 0
Net charge-offs 0 0 3 0 0
Allowance at end of period 572 552 522 500 400
Allowance for loan losses to
total non-performing loans
at end of period 79.78% 65.87% 68.41% 49.26% 41.54%
Allowance for loan losses
to total net loans at end
of period .49% .56% .62% .60% .47%
The following table presents the allocation of the allowance
for loan losses to the total amount of net loans in each
category listed at the dates indicated.
September 30,
1996 1995
% of Loans % of Loans
in Each in Each
Category to Category to
Amount Total Loans Amount Total Loans
Mortgage loans 511 95.66 509 97.94
Commercial 31 2.77 15 1.57
Consumer loans 30 3.57 28 2.71
Total allowance
for loan losses 572 102.00 552 102.22
September 30,
1994 1993
% of Loans % of Loans
in Each in Each
Category to Category to
Amount Total Loans Amount Total Loans
Mortgage loans 497 99.28 475 97.85
Commercial 0 0 0 0
Consumer loans 25 2.17 25 3.39
Total allowance
for loan losses 522 101.45 500 101.24
September 30,
1992
% of Loans
in Each
Category to
Amount Total Loans
Mortgage loans 385 97.96
Commercial 0 0
Consumer loans 15 2.77
Total allowance
for loan losses 400 100.73
Securities
The Company adopted the SFAS No. 115, Accounting for Certain
Investments of Debt and Equity Securities on September 30,
1994. In accordance with SFAS No. 115, management determines
the appropriate classification of debt securities at the time
of purchase. Debt securities are classified as held to
maturity when the Savings Bank has the positive intent and
ability to hold the securities to maturity. Held to maturity
securities are stated at amortized cost. Debt securities not
classified as held to maturity and equity securities are
classified as available for sale. Available for sale
securities are stated at fair value. See Notes 1 through 4 of
the Notes to Consolidated Financial Statements.
The Company's securities portfolio includes mortgage-backed
securities which are insured or guaranteed by the FHLMC, GNMA,
or the FNMA and Collateralized Mortgage Obligations ("CMOs"),
all of which are backed by FHLMC, GNMA, or FNMA securities.
Mortgage-backed securities and CMOs increase the quality of
the Company's assets by virtue of the guarantees that back
them, are more liquid than individual mortgage loans and may
be used to collateralize borrowings or other obligations of
the Company. In addition, at September 30, 1996, $1.5 million
or 6.3% of the mortgage-backed securities in the Company's
mortgage-backed securities and CMOs portfolio were secured by
pools of adjustable-rate mortgages. Mortgage-backed
securities and CMOs of this type serve to reduce the interest
rate risk associated with changes in interest rates.
Investments in mortgage-backed securities and CMOs as well as
investments in other investment securities are managed by the
Company's Investment Committee in accordance with the
Company's Portfolio and Investment Policy. The Company has in
its investment portfolio seven "step up" bonds issued by the
FHLB of Dallas. The yield on each of these bonds increases at
a prescribed rate (ranging from 0.5% to 1.0%) on each
anniversary date but each is also callable by the issuer on
such dates.
The following table sets forth the carrying value of the
Company's investment portfolio at the dates indicated:
September 30,
1996 1995 1994
(In thousands)
Securities available for sale: (1)
U.S. government and federal agencies
bonds and notes 14,870 5,829 7,489
State and local bonds and notes 964 0 0
Mortgage-backed securities 23,687 6,339 6,967
Collateralized mortgage obligations 22,531 3,173 4,172
Equity securities 10,244 6,957 5,693
Mutual funds 2,816 2,827 2,785
Total securities available for sale 75,112 25,125 27,106
Securities held to maturity: (2)
U.S. government and federal agencies
bonds and notes 0 10,446 11,434
State and local bonds and notes 0 388 387
Corporate bonds and notes 0 1,444 2,358
Mortgage-backed securities 0 4,369 4,926
Collateralized mortgage obligations 4,756 17,190 17,689
Total securities available for sale 4,756 33,837 36,794
Total securities 79,868 58,962 63,900
The following table sets forth information regarding the scheduled
maturities, amortized costs, fair value and weighted average yields for the
Savings Bank's securities at September 30, 1996:
1 Yr or Less 1 to 5 Yrs 5 to 10 Yrs Other
Carrying Avg Carrying Avg Carrying Avg Carrying Avg
Value Yld Value Yld Value Yld Value Yld
Dollars in Thousands
Securities available
for sale: (1)
U.S. treasury and
government
obligations 1,501 5.92 12,369 5.97 1,000 6.15 964 6.70
Mortgage-backed
securities 362 7.66 6,280 6.25 4,768 6.35 12,277 7.61
Collateralized
mortgage
obligations 0 0.00 824 7.50 6,178 6.23 15,219 6.14
Equity securities
and mutual funds 0 0.00 0 0.00 0 0.00 13,060 5.89
Total securities
available for sale 1,863 6.26 19,473 6.13 11,946 6.27 41,830 6.51
Securities held to
maturity: (2)
Collateralized
mortgage
obligations 0 0.00 972 6.00 1,003 7.00 2,725 6.09
Total securities
held to maturity 0 0.00 972 6.00 1,003 7.00 2,725 6.09
Total securities 1,863 6.26 20,473 6.12 12,977 6.33 44,555 6.48
1) The carrying value is the approximate fair value of the security at each
reporting date.
2) The carrying value is the amortized cost of the security at each reporting
date.
Cash and Interest-Bearing Deposits in Other Banks
The Savings Bank also had cash on hand and cash due from and
on deposit with other banks amounting to $3.2 million, $2.9
million, and $4.4 million at September 30, 1996, 1995, and
1994, respectively.
Sources of Funds
General. Deposits are the primary source of the Company's
funds for lending and other investment purposes. In addition
to deposits, the Company derives funds from loan principal
repayments. Loan repayments are a relatively stable source of
funds, while deposit inflows and outflows are significantly
influenced by general interest rates and money market
conditions. Borrowings may be used on a short-term basis to
compensate for reductions in the availability of funds from
other sources. They may also be used on a longer term basis
for general business purposes.
Deposits. The Company's deposits are attracted principally
from within the Company's primary market area through the
offering of a wide selection of deposit instruments, including
NOW accounts, money market accounts, regular savings accounts,
and term certificate accounts. Included among these deposit
products are individual retirement account certificates of
approximately $11.2 million at September 30, 1996. Deposit
account terms vary, with the principal differences being the
minimum balance required, the time periods the funds must
remain on deposit and the interest rate. As of September 30,
1996, the certificates of deposit with principal amounts of
$100,000 or more totaled to $33.5 million.
Interest rates paid, maturity terms, service fees and
withdrawal penalties are established by the Savings Bank on a
periodic basis. Determination of rates and terms are
predicated on funds acquisition and liquidity requirements,
rates paid by competitors, growth goals and federal
regulations. Rates on deposits of $100,000 or more are
usually negotiated with the depositor.
The following table sets forth the dollar amount of deposits
in the various types of deposit programs offered at the dates
indicated:
September 30,
1996 1995 1994
Amount % Amount % Amount %
(Dollars in thousands)
Certificates of
deposit: 112,347 85.28 116,562 86.63 108,402 82.13
Transaction
accounts:
Savings accounts 6,873 5.22 8,184 6.08 10,472 7.93
NOW accounts 12,520 9.50 9,808 7.29 13,115 9.94
Total transaction
accounts 19,393 14.72 17,992 13.37 23,587 17.87
Total deposits 131,740 100.00 134,554 100.00 131,989 100.00
The following table sets forth the savings activities of Community during the
periods indicated:
Year Ended September 30,
1996 1995 1994
(In thousands)
Net increase (decrease)
before interest credited (7,893) (2,910) (3,386)
Interest credited 5,079 5,476 6,340
Net increase (decrease)
in deposits (2,814) 2,566 2,954
The following table sets forth the change in dollar and amount of deposits in
the various types of accounts offered by the savings Bank between the dates
indicated:
Increase
(Decrease)
Balance at from Balance at
September 30, % of September 30, September 30, % of
1996 Deposit 1995 1995 Deposits
Now Accounts 12,519,798 9.50 2,711,842 9,807,956 7.29
Savings Accounts 6,873,038 5.22 (1,311,366) 8,184,404 6.08
Certificates of
deposit 112,347,597 85.28 (4,214,547) 116,562,144 86.63
Total 131,740,433 100.00 (2,814,071) 134,554,504 100.00
Increase
(Decrease)
from Balance at
September 30, September 30, % of
1994 1994 Deposit
Now Accounts (3,307,616) 13,115,572 9.94
Savings Accounts (2,287,224) 10,471,628 7.93
Certificates of
deposit 8,160,288 108,401,856 82.13
Total 2,565,448 131,989,056 100.00
The following table sets forth the maturities of Community's certificates of
deposit having principal amounts of $100,000 or more at September 30, 1996:
Certificate of Deposit Maturing
In Quarter Ending: Amount
December 31, 1996 9,202,790
March 31, 1997 9,765,794
June 30, 1997 3,706,295
September 30, 1997 3,674,499
After September 30, 1997 7,154,959
Total certificates of deposit with
Balances of $100,000 or more 33,504,337
The following table sets forth the certificates of deposit in
the Savings Bank classified by rates at the dates indicated:
At September 30,
1996 1995
3.00% to 3.99% 0 369
4.00% to 4.99% 20,952 23,831
5.00% to 5.99% 67,348 48,748
6.00% to 6.99% 23,945 43,512
7.00% to 7.99% 102 102
112,347 1,165,621
The following table sets forth the amount and maturities of
Community's certificates of deposit at September 30, 1996.
Over One Over Two
One Year Year Through Years Through
or Less Two Years Three Years
(In thousands)
4.00% to 4.99% 20,549 213 112
5.00% to 5.99% 50,376 12,494 2,480
6.00% to 6.99% 2,841 4,198 5,873
7.00% to 7.99% 0 0 102
73,766 16,905 8,567
Over Three
Years Through Over
Four Years Four Years Totals
4.00% to 4.99% 78 0 20,952
5.00% to 5.99% 1,643 355 67,348
6.00% to 6.99% 10,956 77 23,945
7.00% to 7.99% 0 0 102
12,677 432 112,347
Deposits in the Savings Bank as of September 30, 1996 were represented by the
various programs described below.
Percentage
of
Interest Minimum Minimum Total
Rate Term Category Amount Balances Savings
2.75% None Passbook Savings Account 50 6,873,038 5.22
2.50% None Golden Checking 500 1,001,642 0.76
0.00% None Non-interest Checking 100 317,995 0.24
2.50% None Silver Checking 300 343,742 0.26
3.25% None Daily Money Market 2,500 6,715,120 5.09
0.00% None Student Checking 50 5,843 0.01
2.50% None Courtesy Checking 100 411,216 0.31
0.00% None Community First Checking 50 461,837 0.35
2.75% None Super Now Checking 1,500 1,744,268 1.32
5.00% None Community First Advantage 100,000 1,518,135 1.15
Certificates of Deposit
5.20% 12 Months Fixed Term, Fixed Rate,
Renewable 1,000 23,915,890 18.15
5.40% 6 Months Fixed Term, Fixed Rate,
Non-renewable 100,000 3,141,395 2.38
5.40% 30 Months Fixed Term, Fixed Rate,
Renewable 1,000 3,842,733 2.92
5.30% 24 Months Fixed Term, Fixed Rate,
Renewable 1,000 9,630,073 7.31
4.85% 182 Days Fixed Term, Fixed Rate,
Renewable 1,000 17,593,420 13.35
5.00% 9 Months Fixed Term, Fixed Rate,
Non-renewable 1,000 510,297 0.39
5.75% 12 Month Fixed Term, Negotiated
Jumbo Rate,
Non-renewable 100,000 29,050,429 22.05
4.00% 91 Days Fixed Term, Fixed Rate,
Renewable 1,000 1,482,945 1.13
5.20% 18 Months Fixed Term, Fixed Rate,
Renewable 1,000 1,893,068 1.44
5.50% 36 Months Fixed Term, Fixed Rate,
Renewable 1,000 8,154,632 6.19
5.70% 48 Months Fixed Term, Fixed Rate,
Renewable 1,000 12,991,685 9.86
5.35% 25 Months Fixed Term, Fixed Rate,
Non-renewable 1,000 139,030 0.11
131,740,433 100.00
Borrowings. The Savings Bank may obtain advances from the
FHLB of Dallas upon the security of its FHLB of Dallas stock
and certain of the Savings Bank's residential mortgage loans,
provided certain standards related to creditworthiness have
been met. Such advances are made pursuant to several credit
programs, each of which has its own interest rate and range of
maturities. Such advances are generally available to meet
seasonal and other withdrawals of deposit accounts and to
permit increased lending.
The Savings Bank had no FHLB advances outstanding at
September 30, 1996.
The following table sets forth the maximum month-end balance
and average balance of Community's FHLB advances during the
periods indicated. See also, Note 11 to the Consolidated
Financial Statements.
Year Ended September 30,
1996 1995 1994
(Dollars in thousands)
Maximum balance 1,000 3,000 0
Average balance 250 2,333 0
Weighted average interest rate
of FHLB advances 5.98% 6.34% 0.00%
The following table sets forth certain information as to Community's
long-term (terms to maturity in excess of 90 days) and short-term (terms to
maturity of 90 days or less) FHLB advances at the dates indicated:
1996 1995 1994
(Dollars in thousands)
FHLB long-term advances 0 1,000 0
Weighted average interest rate 0.00% 5.98% 0.00%
FHLB short-term advances 0 0 0
Weighted average interest rate 0.00% 0.00% 0.00%
Competition
The Savings Bank faces strong competition both in attracting
deposits and making real estate loans. Its most direct
competition for deposits has historically come from other
savings associations, credit unions, and commercial banks
located in northeastern Mississippi, including many large
financial institutions which have greater financial and
marketing resources available to them. In addition, the
Savings Bank has faced additional significant competition for
investors' funds from short-term money market securities and
other corporate and government securities. The ability of the
Savings Bank to attract and retain savings deposits depends on
its ability to generally provide a rate of return, liquidity,
and risk comparable to that offered by competing investment
opportunities.
The Savings Bank experiences strong competition for real
estate loans primarily from other savings associations,
commercial banks, and mortgage banking companies. The Savings
Bank competes for loans principally through the interest rates
and loan fees it charges and the efficiently and quality of
services it provides borrowers. Competition may increase as a
result of the continuing reduction of restrictions on the
interstate operations of financial institutions.
REGULATION
The Company
General. The Company, as a savings and loan holding company
within the meaning of the Home Owners' Loan Act ("HOLA"), is
required to register with the OTS and is subject to OTS
regulations, examinations, supervision, and reporting
requirements. As a subsidiary of a savings and loan holding
company, the Savings Bank is subject to certain restrictions
in its dealings with the Company and affiliates thereof.
Activities Restrictions. There are generally no restrictions
on the activities of a savings and loan holding company which
holds only one subsidiary savings institution. However, if
the Director of the OTS determines that there is reasonable
cause to believe that the continuation by a savings and loan
holding company of an activity constitutes a serious risk to
the financial safety, soundness or stability of its subsidiary
savings institution, the Director may impose such restrictions
as deemed necessary to address such risk, including limiting
(i) payment of dividends by the savings institution; (ii)
transactions between the savings institution and its
affiliates; and (iii) any activities of the savings
institution that might create a serious risk that the
liabilities of the holding company and its affiliates may be
imposed on the savings institution. Notwithstanding the above
rules as to permissible business activities of unitary savings
and loan holding companies, if the savings institution
subsidiary of such a holding company fails to meet a Qualified
Thrift Lender "QTL" test, then such unitary holding company
also shall become subject to the activities restrictions
applicable to multiple savings and loan holding companies and,
unless the savings institution requalifies as a QTL within one
year thereafter, shall register as, and become subject to the
restrictions applicable to, a bank holding company.
If the Company were to acquire control of another savings
institution, other than through merger or other business
combination with the Savings Bank, the Company would thereupon
become a multiple savings and loan holding company. Except
where such acquisition is pursuant to the authority to approve
emergency thrift acquisitions and where each subsidiary
savings institution meets the QTL test, as set forth below,
the activities of the Company and any of its subsidiaries
(other than the Savings Bank or other subsidiary savings
institutions) would thereafter be subject to further
restrictions. Among other things, no multiple savings and
loan holding company or subsidiary thereof which is not a
savings institution shall commence or continue for a limited
period of time after becoming a multiple savings and loan
holding company or subsidiary thereof any business activity, upon
prior notice to, and no objection by the OTS, other than: (i)
furnishing or performing management services for a subsidiary
savings institution; (ii) conducting an insurance agency or
escrow business; (iii) holding, managing, or liquidating
assets owned by or acquired from a subsidiary savings
institution; (iv) holding or managing properties used or
occupied by a subsidiary savings institution; (v) acting as
trustee under deeds of trust; (vi) those activities authorized
by regulation as of March 5, 1987 to be engaged in by multiple
savings and loan holding companies; or (vii) unless the
Director of the OTS by regulation prohibits or limits such
activities for savings and loan holding companies, those
activities authorized by the Federal Reserve Board as
permissible for bank holding companies. Those activities
described in (vii) above also must be approved by the Director
of the OTS prior to being engaged in by a multiple savings and
loan holding company.
Limitations on Transactions with Affiliates. Transactions
between savings institutions and any affiliate are governed by
Sections 23A and 23B of the Federal Reserve Act. An affiliate
of a savings institution is any company or entity which
controls, is controlled by or is under common control with the
savings institution. In a holding company context, the parent
holding company of a savings institution (such as the Company)
and any companies which are controlled by such parent holding
company are affiliates of the savings institution. Generally,
Sections 23A and 23B (i) limit the extent to which the savings
institution or its subsidiaries may engage in "covered
transactions: with any one affiliate to an amount equal to 10%
of such institution's capital stock and surplus, and contain
an aggregate limit on all such transactions with all
affiliates to an amount equal to 20% of such capital stock and
surplus and (ii) require that all such transactions be on
terms substantially the same, or at least as favorable, to the
institution or subsidiary as those provided to a
non-affiliate. The term "covered transaction" includes the
making of loans, purchase of assets, issuance of a guarantee
and similar other types of transactions. In addition to the
restrictions imposed by Sections 23A and 23B, no savings
institution may (i) loan or otherwise extend credit to an
affiliate, except for any affiliate which engages only in
activities which are permissible for bank holding companies,
or (ii) purchase or invest in any stocks, bonds, debentures,
notes or similar obligations of any affiliate, except for
affiliates which are subsidiaries of the savings institution.
In addition, Sections 22(h) and (g) of the Federal Reserve Act
place restrictions on loans to execute officers, directors and
principal stockholders. Under Section 22(h), loans to a
director, an executive officer and to a greater than 10%
stockholder of a savings institution, and certain affiliated
interests of either, may not exceed, together with all other
outstanding loans to such person and affiliated interests, the
institution's loan to one borrower limit (generally equal to
15% of the institution's unimpaired capital and surplus).
Section 22(h) permits loans to directors, executive officers
and principal stockholders made pursuant to a benefit or
compensation program that is widely available to employees of
a subject savings association provided that no preference is
given to any officer, director or principal shareholder or
related interest thereto over any other employee. In
addition, the aggregate amount of extensions of credit by a
savings institution to all insiders cannot exceed the
institution's unimpaired capital and surplus. Furthermore,
Section 22(g) places additional restrictions on loans to
executive officers. At September 30, 1995, the Savings Bank
was in compliance with the above restrictions.
Restrictions on Acquisitions. Except under limited
circumstances, savings and loan holding companies are
prohibited from acquiring, without prior approval of the
Director of the OTS, (i) control of any other savings
institution or savings and loan holding company or
substantially all the assets thereof or (ii) more than 5% of
the voting shares of a savings institution or holding company
thereof which is not a subsidiary. Except with the prior
approval of the Director of the OTS, no director or officer of
a savings and loan holding company or person owning or
controlling by proxy or otherwise more than 25% of such
company's stock, may acquire control of any savings
institution, other than a subsidiary savings institution, or
of any other savings and loan holding company.
The Director of the OTS may only approve acquisitions
resulting in the formation of a multiple savings and loan
holding company which controls savings institutions in more
than one state if (i) the multiple savings and loan holding
company involved controls a savings institution which operated
a home or branch office located in the state of the
institution to be acquired as of March 5, 1987; (ii) the
acquirer is authorized to acquire control of the savings
institution pursuant to the emergency acquisition provisions
of the Federal Deposit Insurance Act ("FDIA"); or (iii) the
statutes of the state in which the institution to be acquired
is located specifically permit institutions to be acquired by
the state-chartered institutions or savings and loan holding
companies located in the state where the acquiring entity is
located (or by a holding company that controls such
state-chartered savings institutions).
The Bank Holding Company Act of 1956 specifically authorizes
the Federal Reserve Board to approve an application by a bank
holding company to acquire control of a savings institution.
A bank holding company that controls a savings institution is
also authorized to merge or consolidate the assets and
liabilities to, any subsidiary bank which is a member of the
BIF with the approval of the appropriate federal banking
agency and the Federal Reserve Board. As a result of these
provisions, there have been a number of acquisitions of
savings institutions by bank holding companies in recent
years.
Federal Securities Laws. The Company is registered with the
Securities and Exchange Commission ("SEC") under the
Securities Exchange Act of 1934, as amended (the "Securities
Exchange Act"), and under OTS regulations. Generally, the
Common Stock may not be deregistered for at least three years
after the Conversion. The Company is subject to the
information, proxy solicitation, insider trading restrictions
and other requirements of the Securities Exchange Act.
The Savings Bank
General. The OTS has extensive authority over the operations
of federally chartered savings institutions. As part of this
authority savings institutions are required to file periodic
reports with the OTS and are subject to periodic examinations
by the OTS and the FDIC. The investment and lending authority
of savings institutions are prescribed by federal laws and
regulations, and such institutions are prohibited from
engaging in any activities not permitted by such laws and
regulations. Those laws and regulations generally are
applicable to all federally chartered savings institutions and
may also apply to state-chartered savings institutions. Such
regulation and supervision is primarily intended for the
protection of depositors.
The OTS has broad enforcement authority over all savings
institutions, including, among other things, the ability to
assess civil money penalties, to issue cease and desist or
removal orders and to initiate injunctive actions. In
general, these enforcement actions may be initiated for
violations of laws and regulations and unsafe or unsound
practices. Other actions or inactions may provide the basis
for enforcement action, including misleading or untimely
reports filed with the OTS.
Deposit Insurance
The deposits of the Bank are currently insured by the SAIF.
Both the SAIF and the Bank Insurance Fund ("BIF"), the federal
deposit insurance fund that covers the deposits of state and
national banks and certain state savings Banks, are required
by law to attain and thereafter maintain a reserve ration of
1.25% of insured deposits. The BIF has achieved the required
reserve rate, and as a result, the FDIC reduced the average
deposit insurance premium paid by BIF-insured banks to a level
substantially below the average premium paid by savings
institutions.
Banking legislation was enacted September 30, 1996 to
eliminate the premium differential between SAIF-insured
institutions and BIF-insured institutions. The legislation
provides that all insured depository institutions with
SAIF-assessable deposits as of March 31, 1995 pay a special
one-time assessment to recapitalize the SAIF. Pursuant to this
legislation, the FDIC promulgated a rule that established the
special assessment necessary to recapitalize the SAIF at 65.7
basis points of SAIF-assessable deposits held by effected
institutions as of March 31, 1995. Based upon its level of
SAIF deposits as of March 31, 1995, the Savings Bank will pay
a special assessment of approximately $870,000. The
assessment was accrued in the quarter ended September 30,
1996.
Another component of the SAIF recapitalization plan provided
for the merger of the SAIF and BIF on January 1, 1999, if no
insured depository institution is a savings association on
that date. If the Savings Bank is required to convert to a
bank charter, the Company would become a bank holding company
which would subject it to the more restrictive activity limits
imposed on bank holding companies unless special grandfather
provisions are included in applicable legislation or
regulation. As of September 30, 1996, the Company has no
investments or activities that would be adversely affected if
it were required to become a bank holding company.
Regulatory Capital Requirements. Federal insured savings
institutions are required to maintain minimum levels of
regulatory capital established by the OTS. These standards
generally must be as stringent as the comparable capital
requirements imposed on national banks. The OTS also is
authorized to impose capital requirements in excess of these
standards on individual institutions on a case-by-case basis.
Current OTS capital standards require savings institutions to
satisfy three different capital requirements. Under these
standards, savings institutions must maintain "tangible"
capital equal to at least 1.5% of adjusted total assets,
"core" capital equal to at least 3% of adjusted total assets
and "total" capital (a combination of core and "supplementary"
capital) equal to at least 8.0% of "risk-weighted" assets.
For purposes of the regulation, core capital generally
consists of common equity (including retained earnings),
noncummulative perpetual preferred stock and related surplus,
minority interests in the equity accounts of fully
consolidated subsidiaries, certain nonwithdrawable accounts
and pledged deposits and "qualifying supervisory goodwill."
Tangible capital is given the same definition as core capital
but does not include qualifying supervisory goodwill and is
reduced by the amount of all the savings institution's
intangible assets, with only a limited exception for purchased
mortgage servicing rights. The Savings Bank had no goodwill
or other intangible assets at September 30, 1996. Both core
and tangible capital are further reduced by an amount equal to
a savings institution's debt and equity investments in
subsidiaries engaged in activities not permissible to national
banks (other than subsidiaries engaged in activities
undertaken as agent for customers or in mortgage banking
activities and subsidiary depository institutions or their
holding companies). These adjustments do not affect the
Savings Bank's regulatory capital. Supplementary capital
generally consists of hybrid capital instruments; perpetual
preferred stock which is not eligible to be included as core
capital; subordinated debt and intermediate-term preferred
stock; and general allowances for loan losses up to a maximum
of 1.25% of risk-weighted assets.
In determining compliance with the risk-based capital
requirement, a savings institution is allowed to include both
core capital and supplementary capital in its total capital,
provided that the amount of supplementary capital included
does not exceed the savings institution's core capital. In
determining the required amount of risk-based capital, total
assets, including certain off-balance sheet items, are
multiplied by a risk weight based on the risks inherent in the
type of assets. The risk weight assigned by the OTS for
principal categories of assets are (i) 0% for cash and
securities issued by the U. S. Government or unconditionally
backed by the full faith and credit of the U. S. Government;
(ii) 20% for securities (other than equity securities) issued
by U. S. Government-sponsored agencies and mortgage-backed
securities issued by, or fully guaranteed as to principal and
interest by, the FNMA or the FHLMC, except for those classes
with residual characteristics or stripped mortgage-related
securities; (iii) 50% for prudently underwritten permanent
one-to-four family first lien mortgage loans not more than 90
days delinquent and having a loan-to-value ratio of not more
than 80% at origination unless insured to such ratio by an
insurer approved by the FNMA or the FHLMC, qualifying
residential bridge loans made directly for the construction of
one-to-four family residences and qualifying multi-family
residential loans; and (iv) 100% for all other loans and
investments, including consumer loans, commercial loans, and
single-family residential real estate loans more than 90 days
delinquent, and for repossessed assets.
At September 30, 1996, the Savings Bank exceeded all of its
regulatory capital requirements. The following table sets
forth the Savings Bank's compliance with applicable regulatory
capital requirements at September 30, 1996:
To Be Well
Minimum for Capitalized for
Capital Adequacy Prompt Corrective
Actual Purposes Action Provisions
Ratio Amount Ratio Amount Ratio Amount
Stockholders' equity and
ratio to total assets 24.2% 45,163
Unrealized gain on
available for sale
securities (3,329)
Tangible capital, and
ratio to adjusted total
assets 22.8% 41,834 1.5% 2,748
Tier 1 (core) capital,
and ratio to adjusted
total assets 22.8% 41,834 3.0% 5,496 5.0% 9,160
Tier 1 capital, and
ratio to risk-weighted
assets 50.1% 41,834 4.0% 3,339 6.0% 5,009
Tier 2 capital (general
allowance for loan losses) 572
Total risk-based capital,
and ratio to risk-weighted
assets 50.8% 42,406 8.0% 6,679 10.0% 8,349
Total assets 186,538
Adjusted total assets 183,209
Risk-weighted assets 83,487
In August 1993, the OTS adopted a final rule incorporating an
interest-rate risk component into the risk-based capital
regulation. Under the rule, an institution with a greater
than "normal" level of interest rate risk is subject to a
deduction of its interest rate risk component from total
capital for purposes of calculating its risk-based capital. As
a result, such an institution is required to maintain
additional capital in order to comply with the risk-based
capital requirement. An institution with a greater than
"normal" interest rate risk is defined as an institution that
would suffer a loss of net portfolio value exceeding 2.0% of
the estimated economic value of its assets in the event of a
200 basis point increase or decrease (with certain minor
exceptions) in interest rates. The interest rate risk
component is calculated, on a quarterly basis, as one-half of
the difference between an institution's measured interest rate
risk and 2.0% multiplied by the economic value of its assets.
The rule also authorizes the Director of the OTS, or his
designee, to waive or defer an institution's interest rate
risk component on a case-by-case basis. The final rule was
effective as of January 1, 1994, subject however to a three
quarter "lag" time between the reporting date of the data used
to calculate an institution's interest rate risk and the
effective date of each quarter's interest rate risk component.
The OTS postponed the interest rate risk capital deduction in
order to provide sufficient time to implement and evaluate the
OTS appeals process as well as get a better sense of the
direction that the other federal banking agencies may take in
their implementation of Section 305 of FDICIA.
Prompt Corrective Action. Under Section 39 of the FDIA, as
added by the FDICIA, each federal banking agency was required
to implement a system of promptly corrective action for
institutions which it regulates. The federal banking
agencies, including the OTS, adopted substantially similar
regulations to implement Section 38 of the FDIA. Under the
regulations, an institution is deemed to be (i) "well
capitalized" if it has total risk-based capital of 10.0% or
more, than a Tier 1 risk-based capital ratio of 6.0% or more,
has a Tier 1 leverage capital ratio of 5.0% or more and is not
subject to any order or final capital directive to meet and
maintain a specific capital level for any capital measure,
(ii) "adequately capitalized" if it has a total risk-based
capital ratio of 8.0% or more, a Tier 1 risk-based capital
ratio of 4.0% or more and a Tier 1 leverage capital ratio of
4.0% or more (3.0% under certain circumstances) and does not
meet the definition of "well capitalized," (iii)
"undercapitalized" if it has a total risk-based capital ratio
that is less than 8.0%, a Tier 1 risk-based capital ratio that
is less than 4.0% or a Tier 1 leverage capital ratio that is
less than 4.0% (3.0% under certain circumstances), (iv)
"significantly undercapitalized" if it has a total risk-based
capital ratio that is less than 6.0%, a Tier 1 risk-based
capital ratio that is less than 3.0% or a Tier 1 leverage
capital ratio that is less than 3.0%, and (v) "critically
undercapitalized" if it has a ratio of tangible equity to
total assets that is equal to or less than 2.0%. Section 38
of the FDIA and the regulations promulgated thereunder also
specify circumstances under which a federal banking agency may
reclassify a well capitalized institution as adequately
capitalized and may require an adequately capitalized
institution or an undercapitalized institution to comply with
supervisory actions as if it were in the next lower category
(except that the FDIC may not reclassify a significantly
undercapitalized institution as critically undercapitalized).
An institution generally must file a written capital
restoration plan which meets specified requirements with an
appropriate federal banking agency with 45 days of the date
that the institution receives notice or is deemed to have
notice that it is undercapitalized, significantly
undercapitalized or critically undercapitalized. A federal
banking agency must provide the institution with written
notice of approval or disapproval with 60 days after receiving
a capital restoration plan, subject to extensions by the
agency.
An institution which is required to submit a capital
restoration plan must concurrently submit a performance
guaranty by each company that controls the institution. Such
guaranty shall be limited to the lesser of (i) an amount equal
to 5.0% of the institution's total assets at the time the
institution was notified or deemed to have notice that it was
undercapitalized or (ii) the amount necessary to restore the
relevant capital measures of the institution to the levels
required for the institution to be classified as adequately
capitalized. Such a guarantee shall expire after the federal
banking agency notifies the institution that it has remained
adequately capitalized for each of four consecutive calendar
quarters. An institution which fails to submit a written
capital restoration plan with the requisite period, including
any required performance guarantee(s), or fails in any
material respect to implement a capital restoration plan,
shall be subject to the restrictions in Section 38 of the FDIA
which are applicable to significantly undercapitalized
institutions.
Immediately upon becoming undercapitalized, an institution
shall become subject to the provisions of Section 38 of the
FDIA (i) restricting payment of capital distributions and
management fees, (ii) requiring that the appropriate federal
banking agency monitor the condition of the institution and
its efforts to restore its capital, (iii) requiring submission
of a capital restoration plan, (iv) restricting the growth of
the institution's assets and (v) requiring prior approval of
certain expansion proposals. The appropriate federal banking
agency for an undercapitalized institution also may take any
number of discretionary supervisory actions if the agency
determines that any of these actions is necessary to resolve
the problem of the institution at the least possible long-term
cost to the deposit insurance fund, subject in certain cases
to specified procedures. These discretionary supervisory
actions include requiring the institution to raise additional
capital; restricting transactions with affiliates; restricting
interest rates paid by the institution on deposits; requiring
replacement of senior executive officers and directors;
restricting the activities of the institution and its
affiliates; requiring divestiture of the institution or the
sale of the institution to a willing purchaser; and any other
supervisory action that the agency deems appropriate. These
and additional mandatory and permissive supervisory actions
may be taken with respect to significantly undercapitalized
and critically undercapitalized institutions.
At September 30, 1996, the Savings Bank was deemed a "well
capitalized" institution for purpose of the above regulations
and as such was not subject to the above mentioned
restrictions.
Safety and Soundness. On November 18, 1993, a joint notice of
proposed rulemaking was issued by the OTS, the Office of the
Comptroller of the Currency and the Federal Reserve Board
(collectively, the "agencies") concerning standards for safety
and soundness required to be prescribed by regulation pursuant
to Section 39 of the FDIA. In general, the standards relate
to (1) operational and managerial matters; (2) asset quality
and earnings; and (3) compensation. The operational and
managerial standards cover (a) internal controls and
information systems, (b) internal audit system, (c) loan
documentation, (d) credit underwriting, (e) interest rate risk
exposure, (f) asset growth, and (g) compensation, fees and
benefits. Under the proposed asset quality and earnings
standards, the Savings Bank would be required to maintain (1)
a maximum ratio of classified assets (assets classified
substandard, doubtful and to the extent that related losses
have not been recognized, assets classified loss) to total
capital of 1.0%, and (2) minimum earnings sufficient to absorb
losses without impairing capital. The last ratio concerning
market value to book value was determined by the agencies not
to be feasible. Finally, the proposed compensation standard
states that compensation will be considered excessive if it is
unreasonable or disproportionate to the services actually
performed by the individual being compensated. If an insured
depository institution or its holding company fail to meet any
of the standards promulgated by regulation, then such
institution or company will be required to submit a plan
within 30 days to the FDIC specifying the steps it will take
to correct the deficiency. In the event that an institution
or company fails to submit or fails in any material respect to
implement a compliance plan within the time allowed by the
agency, Section 39 of the FDIA provides that the FDIC must
order the institution or company to correct the deficiency and
may (1) restrict asset growth; (2) require the institution or
company to increase its ratio of tangible equity to assets;
(3) restrict the rates of interest that the institution or
company may pay; or (4) take any other action that would
better carry out the purpose of prompt corrective action. The
Savings Bank believes that it will be in compliance with each
of the standards if they are adopted as proposed.
Liquidity Requirements. Each savings institution is required
to maintain an average daily balance of liquid assets equal to
a certain percentage of the sum of its average daily balance
of net withdrawable deposit accounts and borrowing payable in
one year or less. The liquidity requirement may vary from
time to time (between 4% and 10%) depending upon economic
conditions and savings flows of all savings institutions. At
the present time, the required minimum liquid asset ratio is
5%. At September 30, 1996, the Savings Bank's liquidity ratio
was in excess of the required minimum.
Capital Distributions. OTS regulations govern capital
distributions by savings institutions, which include cash
dividends, stock redemptions or repurchases, cash-out mergers,
interest payments on certain convertible debt and other
transactions charged to the capital account of a savings
institution to make capital distributions. Generally, the
regulation creates a safe harbor for specified levels of
capital distributions from institutions meeting at least their
minimum capital requirements, so long as such institutions
notify the OTS and receive no objection to the distribution
from the OTS. Savings institutions and distributions that do
not qualify for the safe harbor are required to obtain prior
OTS approval before making any capital distributions.
Generally, a savings institution that before and after the
proposed distribution meets or exceeds its fully phased-in
capital requirements (Tier 1 institutions) may make capital
distributions during any calendar year equal to the higher of
(i) 100% of net income for the calendar year-to-date plus 50%
of its "surplus capital ratio" at the beginning of the
calendar year or (ii) 75% of net income over the most recent
four-quarter period. The "surplus capital ratio" is defined
to mean the percentage by which the institution's ratio of
total capital to assets exceeds the ratio of its fully
phased-in capital requirement: is defined to mean an
institution's capital requirements under the statutory and
regulatory standards applicable on December 31, 1994, as
modified to reflect any applicable individual minimum capital
requirement imposed upon the institution. Failure to meet
fully phased-in or minimum capital requirements will result in
further restrictions on capital distributions, including
possible prohibition without explicit OTS approval.
Tier 2 institutions, which are institutions that before and
after the proposed distribution meet or exceed their minimum
capital requirements, may make capital distributions up to 75%
of their net income over the most recent four quarter period.
In order to make distributions under these safe harbors, Tier
1 and Tier 2 institutions must submit 30 days written notice
to the OTS prior to making the distribution. The OTS may
object to the distribution during that 30-day period based on
safety and soundness concerns. In addition, a Tier 1
institution deemed to be in need of more than normal
supervision by the OTS may be downgraded to a Tier 2 or Tier 3
institution as a result of such a determination.
Tier 3 institutions, which are institutions that do not meet
current minimum capital requirements, or that have capital in
excess of either their fully phased-in capital requirement or
minimum capital requirement but which have been notified by
the OTS that it will be treated as a Tier 3 institution
because they are in need of more than normal supervision,
cannot make any capital distribution without obtaining OTS
approval prior to making such distributions.
At September 30, 1996, the Savings Bank was a Tier 1
institution for purposes of this regulation.
Loans to One Borrower. OTS regulations impose limitations on
the aggregate amount of loans that a savings institution could
make to any one borrower, including related entities, that
follow the national bank standard. The regulations generally
do not permit loans to one borrower to exceed the greater of
$500,000 or 15% of unimpaired capital and surplus. Loans in
an amount equal to an additional 10% of unimpaired capital and
surplus also may be made to a borrower if the loans are fully
secured by readily marketable securities. For information
about the largest borrowers from the Savings Bank, see
"Description of Business - Lending Activities - General."
Branching by Federal Savings Institutions. Effective May 11,
1992, the OTS amended its Policy Statement on Branching by
Federal Savings Institutions to permit interstate branching to
the full extent permitted by statute (which is essentially
unlimited). Prior policy permitted interstate branching for
federal savings institutions only to the extent allowed for
state-chartered institutions in the states where the
institution's home office is located and where the branch is
sought. Prior policy also permitted healthy out-of-state
federal institutions to branch into another state, regardless
of the law in that state, provided the branch office was the
result of a purchase of an institution that was in danger of
default.
Generally, federal law prohibits federal savings institutions
from establishing, retaining or operating a branch outside the
state in which the federal institution has its home office
unless the institution meets the IRS's domestic building and
loan test (generally, 60% of a thrift's assets must be
housing-related) ("IRS Test"). The IRS Test requirement does
not apply if: (i) the branch(es) result(s) from an emergency
acquisition of a troubled savings institution (however, if the
troubled savings institution is acquired by a bank holding
company, does not have its home office in the state of the
bank holding company bank subsidiary and does not qualify
under the IRS Test, its branching is limited to the branching
laws for state-chartered banks in the state where the savings
institution is located); (ii) the law of the state where the
branch would be located would permit the branch to be
established if the federal savings institution were chartered
by the state in which its home office is located; or (iii) the
branch was operated lawfully as a branch under state law prior
to the savings institution's conversion to a federal charter.
Furthermore, the OTS will evaluate a branching applicant's
record of compliance with the Community Reinvestment Act of
1977 ("CRA"). An unsatisfactory CRA record may be the basis
for denial of a branching application.
Qualified Thrift Lender Test. All savings institutions are
required to meet a QTL test set forth in Section 10(m) of the
HOLA and regulations of the OTS thereunder to avoid certain
restrictions on their operations. A saving institution that
does not meet the QTL test set forth in the HOLA and
implementing regulations must either convert to a bank charter
or comply with the following restrictions on its operations:
(i) the institution may not engage in any new activity or make
any new investment, directly or indirectly, unless such
activity or investment is permissible for a national bank;
(ii) the branching powers of the institution shall be
restricted to those of a national bank; (iii) the institution
shall not be eligible to obtain any advances from its FHLB;
and (iv) payment of dividends by the institution shall be
subject to the rules regarding payment of dividends by a
national bank. Upon the expiration of three years from the
date the savings institution ceases to be a QTL, it must cease
any activity and not retain any investment not permissible for
a national bank and immediately repay any outstanding FHLB
advances (subject to safety and soundness considerations).
Currently, the QTL test requires that 65% of an institution's
"portfolio assets" (as defined) consist of certain housing and
consumer-related assets on a monthly average basis in nine out
of every 12 months. Assets that qualify without limit for
inclusion as part of the 65% requirement are loans made to
purchase, refinance, construct, improve or repair domestic
residential housing and manufactured housing; home equity
loans; mortgage-backed securities (where the mortgages are
secured by domestic residential housing or manufactured
housing); stock issued by the FHLB of Dallas; loans for
educational purposes, loans to small businesses and loans made
through debit cards or credit card accounts and direct or
indirect obligations of the FDIC. In addition, the following
assets, among others, may be included in meeting the test
subject to an overall limit of 20% of the savings
institution's portfolio assets: 50% of residential mortgage
loans originated and sold within 90 days of origination; 100%
of consumer and educational loans (other than loans for
personal, family or personal purposes included in the
unlimited category); and stock issued by the FHLMC or the
FNMA. Portfolio assets consist of total assets minus the sum
of (i) goodwill and other intangible assets, (ii) property
used by the savings institution to conduct its business, and
(iii) liquid assets up to 20% of the institution's total
assets. At September 30, 1996, the qualified thrift
investments of the Savings Bank were substantially in excess
of 65%.
Accounting Requirements. The Financial Institutions Reform, Recovery,
and Enforcement Act of 1989,("FIRREA") requires the OTS to establish
accounting standards to be applicable to all savings
institutions for purposes of complying with regulations,
except to the extent otherwise specified in the capital
standards. Such standards must incorporate generally accepted
account principles ("GAAP") to the same
degree as is prescribed by the federal banking agencies for
banks or may be more stringent than such requirements.
Effective October 2, 1992, the OTS amended a number of its
accounting regulations and reporting requirements to adopt the
following standards: (i) regulatory reports will incorporate
GAAP when GAAP is used by federal banking agencies; (ii)
savings institution transactions, financial condition and
regulatory capital must be reported and disclosed in
accordance with OTS regulatory reporting requirements that
will be at least as stringent as for national banks; and (iii)
the Director of the OTS may prescribe regulatory reporting
requirements more stringent than GAAP wherever the Director
determines that such requirements are necessary to ensure the
safe and sound reporting and operation of savings
institutions.
Effective February 10, 1992, the OTS adopted a statement of
policy ("Statement") set forth in Thrift Bulletin 52
concerning (i) procedures to be used in the selection of a
securities dealer, (ii) the need to document and implement
prudent policies and strategies for securities, whether held
for investment, trading or for sale, and to establish systems
and internal controls to ensure that securities activities are
consistent with the financial institution's policies and
strategies, (iii) securities trading and sales practices that
may be unsuitable in connection with securities held in an
investment portfolio, (iv) high-risk mortgage securities that
are not suitable for investment portfolio holdings for
financial institutions, and (v) disproportionately large
holdings of long-term, zero-coupon bonds that may constitute
an imprudent investment practice. The Statement applies to
investment securities, high-yield, corporate debt securities,
loans, mortgage-backed securities and derivative securities,
and provides guidance concerning the proper classification of
and accounting for securities held for investment, sale and
trading. Securities held for investment, sale or trading may
be differentiated based upon an institution's desire to earn
an interest yield (held for investment), to realize a holding
gain from assets held for indefinite periods of time (held for
sale), or to earn a dealer's spread between the bid and asked
prices (held for trading). Depository institution investment
portfolios are maintained to provide earnings consistent with
the safety factors of quality, maturity, marketability and
risk diversification. Securities that are purchased to
accomplish these objectives may be reported at their amortized
cost only when the depository institution has both the intent
and ability to hold the assets for long-term investment
purposes. Securities held for investment purposes may be
accounted for at amortized cost, securities held for sale are
to be accounted for at the lower of cost or market, and
securities held for trading are to be accounted for at market.
The Savings bank believes that its investment activities have
been and will continue to be conducted in accordance with the
requirements of OTS policies and GAAP.
Federal Home Loan Bank System. The Savings Bank is a member
of the FHLB of Dallas, which is one of 12 regional FHLBs that
administers the home financing credit function of savings
institutions. Each FHLB serves as a reserve or central bank
for its members within its assigned region. It is funded
primarily from proceeds derived from the sale of consolidated
obligations of the FHLB System. It makes loans to members
(i.e., advances) in accordance with policies and procedures
established by the Board of Directors of the FHLB.
As a member, the Savings Bank is required to purchase and
maintain stock in the FHLB of Dallas in an amount equal to at
least 1% of its aggregate unpaid residential mortgage loans,
home purchase contracts or similar obligations at the
beginning of each year. At September 30, 1996, the Savings
Bank had $1.2 million in FHLB stock, which was in compliance
with this requirement.
As a result of FIRREA, the FHLBs are required to provide funds
for the resolution of troubled savings institutions and to
contribute to affordable housing programs through direct loans
or interest subsidies on advances targeted for community
investment and low- and moderate-income housing projects.
These contributions have adversely affected the level of FHLB
dividends paid and could continue to do so in the future.
These contributions also could have an adverse effect on the
value of FHLB stock in the future.
Federal Reserve System. The Federal Reserve Board requires
all depository institutions to maintain average daily reserves
equal to various percentages against their accounts. The
percentages are subject to adjustment by the Federal Reserve
Board. At September 30, 1996, the Savings Bank met its
reserve requirement. Because required reserves must be
maintained in the form of vault cash or a non-interest-bearing
account at a Federal Reserve Bank, the effect of this reserve
requirement is to reduce an institution's earning assets.
Taxation
General. The Company and the Savings Bank are subject to the
generally applicable corporate tax provisions of the Code, and
the Savings Bank is subject to certain additional provisions
of the Code which apply to thrift and other types of financial
institutions. The following discussion of federal taxation is
intended only to summarize certain pertinent federal income
tax matters and is not a comprehensive discussion of the tax
rules applicable to the Savings Bank.
Fiscal Year. The Company and the Savings Bank file a
consolidated federal income tax return on the basis of a
fiscal year ending on September 30. Consolidated returns have
the effect of eliminating intercompany distributions,
including dividends, from the computation of consolidated
taxable income for the taxable year in which such
distributions occur.
Thrift institutions, such as the Savings Bank, generally are
subject to the provisions of the Internal Revenue Code of
1986, as amended, in the same manner as other corporations.
For tax years beginning before December 31, 1995, however, by
meeting certain definitional tests and other conditions
prescribed by the Internal Revenue Code, thrift institutions
could benefit from special deductions for annual additions to
tax bad debt reserves with respect to loans. For purposes of
the bad debt reserve deduction, loans were separated into
"qualifying real property loans," which generally were loans
secured by interests in improved real property, and
"nonqualifying loans," which were all other loans. The bad
debt reserve deduction with respect to nonqualifying loans was
based on actual loss experience. The bad debt reserve
deduction with respect to qualifying real property loans could
be based upon actual loss experience (the "experience method")
or a percentage of taxable income determined without regard to
such deduction (the "percentage of taxable income method").
The Savings Bank historically used whichever method resulted
in the highest bad debt reserve deduction in any given year.
Legislation enacted in August 1996 repealed the percentage of
taxable income method of calculating the bad debt reserve.
Savings institutions, like the Savings Bank, which have
previously used that method are required to recapture into
taxable income post-1987 reserves in excess of the reserves
calculated under the experience method over a six-year period
beginning with the first taxable year beginning after
December 31, 1995. The start of such recapture may be delayed
until the third taxable year beginning after December 31, 1995
if the dollar amount of the institution's residential loan
originations in each year is not less than the average dollar
amount of residential loan originated in each of the six most
recent years disregarding the years with the highest and
lowest originations during such period. For purposes of this
test, residential loan originations would not include
refinancing and home equity loans.
Beginning with the first taxable year beginning after
December 31, 1995, savings institutions, such as the Savings
Bank, will be treated the same as commercial banks.
Institutions with $500 million or more in assets will be able
to take a tax deduction only when a loan is actually charged
off. Institutions with less than $500 million in assets will
still be permitted to make deductible bad debt additions to
reserves, but only using the experience method. The Savings
Bank is expected to recapture approximately $1,025,000 of its
tax bad debt reserves. The recapture will not have any effect
on the Savings Bank's net income because the related tax
expense has already been accrued.
Under the experience method, the bad debt deduction to an
addition to the reserve for qualifying real property loans is
an amount determined under a formula based generally on the
bad debts actually sustained by a savings institution over a
period of years. Under the percentage of taxable income
method, the bad debt reserve deduction for qualifying real
property loans was computed as 8% of the thrift's taxable
income. The maximum deduction could be taken as long as not
less than 60% of the total dollar amount of the assets of an
institution fell within certain designated categories. If the
amount of qualifying assets fell below 60%, the institution
would get no deduction and could be required to recapture,
generally over a period of years, its existing bad debt
reserves (although net operating loss carryforwards could be
used to offset such recapture).
The bad debt deduction under the percentage of taxable income
method was limited to the extent that the amount accumulated
in the reserve for losses on qualifying real property loans
exceeded 6% of such loans outstanding at the end of the
taxable year. In addition, the amount claimed as a bad debt
deduction when added to accumulated loss reserves was limited
to the excess, if any, of 12% of total deposits or
withdrawable accounts of depositors at year-end in excess of
the sum of surplus, undivided profits and reserves at the
beginning of the year. The percentage bad debt deduction was
reduced by the deduction for losses on nonqualifying loans.
Earnings appropriated to the Savings Bank's tax bad debt
reserves and claimed as tax deductions will not be available
for the payment of cash dividends or other distributions to
the Company (including distributions made upon dissolution or
liquidation), unless the Savings Bank includes the amounts
distributed in taxable income, along with the amounts deemed
necessary to pay the resulting federal income tax. At
September 30, 1996, the Savings Bank included the amounts
distributed in taxable income, along with the amounts deemed
necessary to pay the resulting federal income tax. At
September 30, 1996, the Savings Bank had approximately $2.8 million
of accumulated bad debt reserves for which federal income
taxes have not been provided.
For taxable years beginning after September 30, 1986, the Internal
Revenue Code imposes an alternative minimum tax at a rate of
20%. The alternative minimum tax generally applies to a base
of regular taxable income plus certain tax preferences
("alternative minimum taxable income" or "AMTI") and is
payable to the extent such AMTI exceeds an exemption amount.
The Internal Revenue Code provides that an item of tax
preference is the excess of the bad debt deduction allowable
for a taxable year pursuant to the percentage of taxable
income method over the amount allowable under the experience
method. The other items of tax preference that constitute
AMTI include (a) tax-exempt interest on newly-issued
(generally qualified bonds and (b) for taxable years including
1987 through 1989, 50% of the excess of (i) the taxpayer's
pre-tax adjusted net book income over (ii) AMTI (determined
without regard to this latter preference and prior to
reduction by net operating losses). For taxable years
beginning after 1989, this latter preference has been replaced
by 75% of the excess (if any) of (i) adjusted current earnings
as defined in the Internal Revenue Code, over (ii) AMTI
(determined without regard to this preference and prior to
reduction by net operating losses). For any taxable year
beginning after 1986, net operating losses can offset no more
than 90% of AMTI. Certain payments of alternative minimum
taxes may be used as credits against regular tax liabilities
in future years. In addition, for taxable years after 1986
and before 1992, corporations, including savings institutions,
are also subject to an environmental tax equal to 0.12% of the
excess of AMTI for the taxable year (determined without regard
to net operating losses and the deduction for the
environmental tax) over $2.0 million. The Savings Bank is not
currently paying any amount of alternative minimum tax but
may, depending on future results of operations, be subject to
this tax.
The Savings Bank's federal income tax returns have not been
examined by the regulatory authorities within the past five
years. For additional information, see Note 12 of Notes to
Consolidated Financial Statements contained elsewhere herein.
Mississippi and Delaware Taxation
The Company and the Savings Bank are both subject to
Mississippi corporate income tax and franchise tax to the
extent they are engaged in business in the State of
Mississippi or have income that is generated in the State of
Mississippi.
A franchise tax is imposed and the tax rate of $2.50 per
$1,000, or fraction thereof, of the value of capital used,
invested or employed in the State of Mississippi. The
franchise tax base consists of capital stock issued and
outstanding, paid in capital, surplus, and retained earnings;
however, in no case shall the tax base be less than the
assessed value of real and tangible personal property in the
State of Mississippi. If the Company is classified as a
"holding company" then it may exclude from its franchise tax
base the stock it owns in the Savings Bank. Mississippi law
provides that the value of capital used, invested, or employed
in Mississippi by a "holding corporation" excludes that
portion of the book value of the holding corporation's
investment in stock or securities of its subsidiary
corporation determined by a formula. The formula states that
first, the ratio of (1) the holding corporation's investment
in stock or securities of its subsidiary corporation, computed
using the cost method of accounting, and (2) the holding
corporation's total assets, is computed. Second, the ratio is
then applied to the total capital stock, surplus, paid in
capital and retained earnings of the holding corporation in
order to arrive at the amount of the exclusion. For purposes
of Mississippi franchise taxes, a "holding corporation" is
defined as a corporation, (i) owning at least eighty percent
(80%) of the value and voting power of all classes of issued
and outstanding stock of a corporation, excluding non-voting
stock which is limited and preferred as to dividends, and (ii)
deriving ninety-five (95%) of its gross receipts from
dividends, interest, royalties, rents, certain services
provided to members of an affiliated group and other passive
sources of income.
An income tax is imposed in Mississippi at a rate of 3% on the
first $5,000 of taxable income, 4% on the next $5,000 of
taxable income and 5% on taxable income in excess of $10,000.
For these purposes, "taxable income" generally means federal
taxable income, subject to certain adjustments (including
exclusion of interest income on U.S. Treasury obligations).
The exclusion of income on U.S. Treasury obligations has the
effect of reducing the Mississippi taxable income of savings
institutions.
Two or more members of an affiliated group of corporations may
elect to file a consolidated Mississippi income tax return
when all the business activities of the group of affiliated
corporations included in the consolidated return are conducted
in, and are taxable solely in Mississippi. In addition, the
Commissioner of the Mississippi Tax Commission may require any
and all members of a group of affiliated corporations to file
a combined or consolidated Mississippi income tax return if he
believes such a return is necessary to clearly and equitably
reflect the Mississippi taxable income of the affiliated
group. The term "affiliated group" for Mississippi
consolidated income tax returns means one or more corporations
connected through stock ownership with a common parent
corporation where at least 80% of the voting power of all
classes of stock and at least 80% of each class of the
non-voting stock of each of the member corporations, except
the common parent corporation, is directly owned by one or
more of the other members corporations, and the common parent
directly owns stock possessing at least 80% of the voting
power of all classes of stock and at least 80% of each class
of non-voting stock of at least one of the other member
corporations.
The Company was organized in the State of Delaware, and
therefore it will be required to file a franchise tax return
with the State of Delaware. The Company will also be required
to file an income tax return in the State of Delaware if it
derives income from business activities carried on in the
State of Delaware. Currently, the Company does not have any
business activities in the State of Delaware.
Delaware law provides two methods to calculate the Delaware
Franchise Tax. One method is based on the Company's
authorized number of shares and the second method is based on
the Company's "assumed no-par capital" with respect to no par
shares and on the Company's "assumed par value capital" with
respect to par value shares. The lesser result under both
methods is then used to determine the franchise tax liability
in the State of Delaware.
Under the first method the franchise tax is calculated at a
base rate of $90 on the first 10,000 shares, plus $50.00 per
each additional 10,000 shares or part thereof.
The second method is based on "assumed no-par capital" with
respect to no-par shares and an "assumed par-value capital"
with respect to par value shares as follows:
1. The "assumed no-par capital" is the authorized number of
shares without par value multiplied by $100. The tax
on the "assumed no-par capital" is $30.00 for each
$300,000 or less and is graduated as follows: (i)
$50.00 for over $300,000 but not over $500,000;
(ii) $90.00 for over $500,000 but not over
$1,000,000; and (iii) $90 for over $1,000,000, plus
$50.00 per each additional $1,000,000 or part
thereof.
2. The tax on par value is $200 for each $1,000,000, or
fraction thereof of an "assumed par-value capital." The
"assumed par-value capital" is found as follows: (i)
ascertain average asset value per share by dividing total
gross assets by the total number of issued shares,
including shares without par value; (ii) if average asset
value is more than par value; it is multiplied by the total
number of authorized par value shares; if average assets
value is less than par value of any class of authorized
shares, such shares must be taken at their par value.
Where it is necessary to use average asset value for one
class of shares and par value of any other class or
classes, the "assumed par-value capital" is the sum of the
products of the multiplications.
If a corporation has both no-par shares and par-value shares,
the no-par shares are taxed as calculated above upon a share
basis which is added to the tax calculated above on the par
value shares.
Employees
The Savings Bank had 24 full time employees and one part-time
employee at September 30, 1996. None of the employees is
represented by a collective bargaining agreement.
ITEM 2.--DESCRIPTION OF PROPERTY
The following table sets forth information regarding the
Association's offices at September 30, 1996:
Net Book
Value at Approximate Owned
Year September 30, Square Or
Opened 1996 Footage Leased
Main Office:
333 Court Street
Tupelo, Mississippi 1969 378,502 10,000 Owned
The net book value of the Company's investment in furnishings
and equipment totaled $225,000 at September 30, 1996.
ITEM 3.--LEGAL PROCEEDINGS
From time to time, the Company is a party to various legal
proceedings incident to its business. At September 30, 1996,
there were no legal proceedings to which the Company or its
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 4.--SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
No matters were submitted to a vote of securities holders
during the fourth quarter of fiscal 1996.
ITEM 5.--MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information set forth (i) under "Dividend Restrictions" in
Item 1 of this report and (ii) in the Notes to Consolidated
Financial Statements in Item 6 of this report is incorporated
herein by reference.
The information required herein by reference from page 3 of
the Company's Annual Report to Stockholders for fiscal 1996 ("
Annual Report"), which is included herein as Exhibit 13.
The Company's common stock began trading on the NASDAQ on
March 26, 1996, under the symbol "CFTP." At September 30,
1996, there were 4,628,750 shares of the common stock
outstanding and approximately 1,082 stockholders on record.
The payment of dividends on the Common Stock is subject to
determination and declaration by the Board of Directors of the
Company. The Board of Directors has adopted a policy of
paying quarterly cash dividends on the Common Stock. In
addition, from time to time, the Board of Directors may
determine to pay special cash dividends in addition to, or in
lieu of, regular cash dividends. The payment of future
dividends will be subject to the requirements of applicable
law and the determination by the Board of Directors of the
Company that the net income, capital, and financial condition
of the Company and the Association, thrift industry trends,
and general economic conditions justify the payment of
dividends, and there can be no assurance that dividends will
be paid or, if paid, will continue to be paid in the future.
The following table sets forth information as to high and low
sales prices of the Company's common stock and cash dividends
per share of common stock for the calendar quarters indicated.
Price Per Share Dividends Per Share
High Low Regular Special
Fiscal 1996:
Second quarter 13.500 11.750 .000 .000
Third quarter 13.475 12.375 .075 .000
Fourth quarter 13.625 12.250 .075 .000
ITEM 6.--SELECTED FINANCIAL DATA
The information required herein is incorporated by reference
from page 4 of the Annual Report.
ITEM 7.--MANAGEMENTS'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The information required herein is incorporated by reference
from pages 5 through 16 of the Annual Report.
ITEM 8.--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required herein are incorporated by
reference from pages 18 through 45 of the Annual Report.
ITEM 9.--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10.--DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF
THE EXCHANGE ACT
Information concerning the directors and executive officers of
the Company and Transactions with Management is incorporated
herein by reference to the sections captioned "Executive
Officers Who Are Not Directors" in Item 1. of this report and
"Proposal I--Election of Directors" in the Proxy Statement.
ITEM 11.--EXECUTIVE COMPENSATION
The information required by this item is incorporated herein
by reference to the section captioned "Executive Compensation"
in the Proxy Statement.
ITEM 12.--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item is incorporated herein
by reference to the sections captioned "Voting Securities and
Security Ownership" and "Proposal I--Election of Directors" in
the Proxy Statement.
ITEM 13.--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein
by reference to the section captioned "Transactions with
Management" in the Proxy Statement.
PART IV
ITEM 14.--EXHIBITS LIST AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Report
(1) The following financial statements are
incorporated by reference from item 8 hereof
(see Exhibit 13 attached hereto):
Independent Auditors's Report
Consolidated Statements of Financial Condition at
September 30, 1996 and 1995.
Consolidated Statements of Earnings for the Years
Ended September 30, 1996, 1995 and 1994.
Consolidated Statements of Changes in
Stockholders' Equity for the Years Ended
September 30, 1996, 1995, and 1994.
Consolidated Statements of Cash Flows for the
Years Ended September 30, 1996, 1995 and 1994.
Notes to Consolidated Financial Statements
(2) All Schedules for which provision is made in
the applicable accounting regulations of the
Securities and Exchange Commission are
omitted because of the absence of conditions under
which they are required or because the required
information is included in the financial
statements and related notes thereto.
(3) The following exhibits are filed as part of
this Form 10-K and this list includes the
Exhibit Index.
No. Exhibits Page
3.1 Certificate of Incorporation *
3.2 Bylaws *
4.1 Specimen Common Stock Certificate *
10.1(a) Employee Stock Ownership Plan *
13 Annual Report to Stockholders E-1
23 Consent of Independent Public
Accountants E-60
*Incorporated herein by reference to the Registration
Statement file number 33-99962 on Form S-1.
(b) Reports on Form 8-K during the quarter ended
September 30, 1996.
1. On October 30, 1996, the Company filed a current
report on Form 8-K announcing the authority to
repurchase up to 231,437 shares of common stock
and reporting its earnings and other financial
information for the quarter ended September 30,
1996.
(c) See (a)(3) above for all exhibits filed herewith and
the Exhibit Index.
(d) There are no other financial statements and financial
statements schedules which were excluded from Item 8
which are required to be included herein.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, as of the date
indicated below:
COMMUNITY FEDERAL BANCORP, INC.
Date: December 27, 1996 By: (s)Jim Ingram
Jim Ingram
President and Chief
Executive officer
(Duly Authorized Representative)
By: (s)Sherry McCarty
Sherry McCarty
Controller
(Chief Financial and Accounting
(Officer)
(Duly Authourized Representative)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following
persons on behalf of the registrant in the capacities
indicated below as of the date indicated above.
Date: December 26, 1996
Medford M. Leake J. Leighton Pettis
(Director) (Director)
Charles V. Imbler L. F. Sams, Jr.
(Director) (Director)
Robert R. Black, Sr. Michael R. Thomas
(Director) (Director)
Robert W. Reed, III.
(Director)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this registration statement of
our report dated October 25, 1996 included in the Community
Federal Bancorp Inc.'s Form 10-K for the year ended September
30, 1996 and to all references to our Firm included in this
registration statement.
(S) Arthur Andersen
Arthur Andersen, LLP
Birmingham, Alabama
December 27, 1996