To Our Stockholders:
We are pleased to provide you with the First Annual Report of
Community Federal Bancorp, Inc. since becoming a Stock Company
as of March 25, 1996.
Net earnings for the fiscal year ended September 30, 1996,
amounted to $2.1 million, an increase of 5.4% from September
30, 1995. These earnings resulted in a 1.05% return on
assets.
Legislation was passed in 1996 to recapitalize the Savings
Association Insurance Fund ("SAIF") with a one time
assessment. This was a cost to Community Federal of $863,000
, $535,000 net of tax benefit, thus our earnings would have
been approximately $2.6 million without this assessment.
This action will have a positive effect on our future earnings
by reducing our SAIF premium by seventeen (17) basis points.
Stockholders' Equity as of September 30, 1996 was $67.1
million, an increase of 186.6% over September 30, 1995. This
growth was primarily due to the infusion of capital from our
successful stock conversion. Total assets increased during
the fiscal year 25.9% to $204 million, of which 25.6% of the
increase was due to the conversion.
Your Company is well capitalized and profitable. We look to
the future with optimism and a determination to serve this
area with personal service and dedication.
We appreciate your investment in this Company and ask for your
continued support.
Jim Ingram
Community Federal Bancorp, Inc.
President and Chief Executive Officer
COMMUNITY FEDERAL BANCORP, INC.
Community Federal Bancorp, Inc. (the "Company") was
incorporated at the direction of management of Community
Federal Savings Bank (the "Bank") for the purpose of serving
as a savings institution holding company of the Bank upon the
acquisition of all of the capital stock issued by the Bank
upon its conversion from mutual to stock form (the
"Conversion") effective March 25, 1996. The Company is
classified as a unitary savings institution holding company
and is subject to regulation by the Office of Thrift
Supervision ("OTS").
The Bank was organized in 1933 as a federally chartered mutual
savings and loan association, at which time it also became a
member of the Federal Home Loan Bank ("FHLB") System and
obtained federal deposit insurance. The Bank currently
operates through its banking office located in Tupelo,
Mississippi. At September 30, 1996, the Bank had total assets
of $204.0 million, deposits of $131.7 million, and
stockholders' equity of $67.1 million, or 32.9% of total
assets.
The Bank's business strategy has been to operate as a
profitable and independent community-oriented savings
institution dedicated to providing quality customer service.
Generally, the Bank has sought to implement this strategy by
using retail deposits as its sources of funds and maintaining
most of its assets in mortgage-backed securities issued by the
Federal Home Loan Mortgage Corporation ("FHLMC"), the
Government National Mortgage Association ("GNMA") and the
Federal National Mortgage Association ("FNMA"), loans secured
by owner-occupied one-to-four-family residential real estate
located in Lee County, Mississippi and portions of the surrounding
counties,(" the Bank's market area"), U.S. government and agency
securities, interest-earning deposits, cash and equivalents
and consumer loans. The Bank's business strategy incorporates
the following key elements: (1) remaining a
community-oriented financial institution while maintaining a
strong core customer base by providing quality service and
offering customers the access to senior management and
services that a community-based institution can offer; (2)
attracting a relatively strong retail deposit base from the
communities served by the Bank's banking offices; (3)
maintaining asset quality by emphasizing investment in local
residential mortgage loans, mortgage-backed securities, and
other securities issued or guaranteed by the U.S. government
or agencies thereof; and (4) maintaining liquidity and capital
substantially in excess of regulatory requirements.
As a federally chartered savings institution, the Bank is
subject to extensive regulation by the OTS. The lending
activities and other investments of the Bank must comply with
various federal regulatory requirements, and the OTS
periodically examines the Bank for compliance with various
regulatory requirements. The Federal Deposit Insurance
Company ("FDIC") also has the authority to conduct special
examinations. The Bank must file reports with OTS describing
its activities and financial condition and is also subject to
certain reserve requirements promulgated by the Board of
Governors of the Federal Reserve System ("Federal Reserve
Board").
MARKET FOR COMMON STOCK
AND RELATED STOCKHOLDER MATTERS
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 1082 stockholders of 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
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
Year Ended September 30,
1996 1995 1994 1993 1992
(In thousands)
INCOME STATEMENT DATA:
Total interest income $13,150 $11,016 $10,011 $10,275 $11,154
Total interest expense 6,950 6,267 6,438 5,312 6,701
Net interest income 6,200 4,749 3,573 4,963 4,453
Provision for loan losses 20 30 25 100 190
Net interest income
after provision for
loan losses 6,180 4,719 3,548 4,863 4,263
Noninterest income 188 132 752 133 173
Noninterest expense 3,036 1,672 1,840 1,508 1,248
Income before income taxes 3,332 3,179 2,460 3,488 3,188
Provision for income taxes 1,184 1,144 1,012 1,171 1,060
Cumulative effect of change
in accounting principle 0 0 131 0 0
Net income $ 2,148 $ 2,035 $ 1,317 $ 2,317 $ 2,128
Earnings per share (1) $.27 N/A N/A N/A N/A
At September 30,
1996 1995 1994 1993 1992
(In thousands)
BALANCE SHEET DATA:
Total assets $204,017 $162,042 $154,600 $147,909 $141,799
Loans receivable, net 117,631 97,988 84,269 84,429 84,657
Mortgage-backed and
related securities 50,974 31,071 33,755 29,043 28,537
Securities 28,893 27,890 30,146 15,615 10,429
Deposits 131,740 134,555 131,989 129,035 125,507
Stockholders' equity 67,139 23,427 20,394 17,650 15,200
Year Ended June 30,
1996 1995 1994 1993 1992
(In thousands)
KEY OPERATING DATA:
Return on average
assets 1.1% 1.3% 0.9% 1.6% 1.6%
Return on average
equity 4.4 9.4 7.0 14.0 15.0
Average equity to
average assets 26.2 13.6 12.4 11.1 10.4
Dividend payout
ratio (1) 57.9 N/A N/A N/A N/A
Number of offices 1 1 1 1 1
(1) Earnings per share and dividend payout ratio are
presented from the conversion date, March 25, 1996.
ITEM 5.--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
As is the case with most savings institutions, the
profitability of the Savings Bank depends primarily on its net
interest income, which is the difference between interest and
dividend income on interest-earning assets, principally loans,
mortgage-backed securities and investment securities, and
interest expense on interest-bearing deposits. The Savings
Bank's net earnings also is dependent, to a lesser extent, on
the level of provision for loan losses, its non-interest
income and non-interest expenses, such as compensation and
benefits, occupancy and equipment, deposit insurance premiums,
and miscellaneous other expenses, as well as provisions for
federal and state income tax.
Business Strategy
The Company's goal is to continue to serve its Primary Market
Area as an independent, consumer-oriented financial
institution dedicated to financing home ownership and
providing needed financial services to its customers in an
efficient manner. The principal components of its business
strategy are discussed below.
Emphasis on Traditional Lending in its Primary Market Area.
The Savings Bank is a traditional savings bank operating in
northeastern Mississippi. The Savings Bank's primary lending
emphasis has been the origination for portfolio of one-to-four
family residential first mortgage loans. The Savings Bank
generally limits its lending activities to its Primary Market
Area. The Savings Bank believes that it has a substantial
market share in Lee County and competitive market shares in
the other counties in which it operates, both with respect to
deposits and first mortgage loans. In order to offer a
broader array of loan products to its customers, in fiscal
1995 the Savings Bank began to originate automobile and
commercial loans.
Interest Rate Risk Management. The Savings Bank has actively
sought to reduce vulnerability of its operations to changes in
interest rates by managing the imbalance between its
interest-earning assets and interest-bearing liabilities with
shorter-term and more liquid securities and other investments.
To achieve this goal, the Savings Bank has invested new funds
from deposit growth and earnings and funds from repayments of
loans and securities into mortgage-backed securities and
collateralized mortgage obligations ("CMO") and government-related
securities with a maturity or average life of five years or
less. Moreover, the automobile and commercial loans that the
Savings Bank began to originate in fiscal 1995 will add
additional shorter-term loans that will be held in the Savings
Bank's loan portfolio.
Maintain Asset Quality. Management believes that high asset
quality is a key to long-term financial success. As a result,
the loans which are emphasized by the Savings Bank and its
related policies and practices are intended to maintain a high
level of asset quality and reduced credit risk. At
September 30, 1996, the Savings Bank's non-performing assets,
which consist of non-accrual loans, accruing loans greater
than 90 days delinquent and real estate acquired through
foreclosure or by deed-in-lieu thereof, amounted to $717,000
or 0.35% of the Savings Bank's total assets.
High Levels of Regulatory Capital and Moderate Growth. The
Savings Bank seeks to maintain high levels of regulatory
capital to give it maximum flexibility in the changing
regulatory environment and to respond to changes in the market
and economic conditions. These levels of capital have been
achieved through the conversion and consistent earnings
enhanced by low levels of non-interest expenses at the Savings
Bank's single office and have been maintained at those high
levels as a result of its policies of moderate growth
generally confined to its Primary Market Area. At
September 30, 1996, the Savings Bank's tangible, core and
risk-based capital ratios amounted to 22.8%, 22.8%, and 50.8%,
respectively, which exceeded the minimum requirements of 1.5%,
3.0%, and 8.0%, respectively.
Low Non-Interest Expense. The Savings Bank's non-interest
expenses were 1.6% of average total assets for the fiscal year
ended September 30, 1996 and have averaged approximately 1.1%
of average total assets annually for each of the five fiscal
years in the period ended September 30, 1996. A principal
factor in the Savings Bank's low-level of non-interest
expenses is its single office operation.
Asset/Liability Management
The ability to maximize net interest income is largely
dependent upon the achievement of a positive interest rate
spread that can be sustained during fluctuations in prevailing
interest rates. Interest rate sensitivity is a measure of the
difference between amounts of interest-earning assets and
interest-bearing liabilities which either reprice or mature
within a given period of time. The difference, or the
interest rate repricing "gap," provides an indication of the
extent to which an institution's interest rate spread will be
affected by changes in interest rates. A gap is considered
positive when the amount of interest-rate sensitive assets
exceeds the amount of interest-rate sensitive liabilities, and
is considered negative when the amount of interest-rate
sensitive liabilities exceeds the amount of interest-rate
sensitive assets maturing or repricing within a given period.
Generally, during a period of rising interest rates, a
negative gap within shorter maturities would adversely affect
net interest income, while a positive gap within shorter
maturities would result in an increase in net interest income,
and during a period of falling interest rates, a negative gap
within shorter maturities would result in an increase in net
interest income while a positive gap within shorter maturities
would have the opposite effect.
The lending activities of savings associations have
historically emphasized long-term, fixed-rate loans secured by
one-to-four family residences, and the primary source of funds
of such institutions has been deposits. The deposit accounts
of savings associations generally bear interest rates that
reflect market rates and largely mature or are subject to
repricing within a short period of time. This factor, in
combination with substantial investments in long-term,
fixed-rate loans, has historically caused the income earned by
savings associations on their loan portfolios to adjust more
slowly to changes in interest rates than their cost of funds.
In addition, 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 Savings Bank originates both fixed- and adjustable-rate
residential real estate loans as market conditions dictate.
In the current interest rate environment, it generally offers
fixed-rate loans up to a 15-year term and adjustable-rate
loans with a maximum term of 30 years. All of the
adjustable-rate loans in the Savings Bank's loan portfolio are
indexed to the National Average Mortgage Rate Index, published
by the FHLB System monthly and are adjusted on an annual basis
after an initial fixed-rate period of up to three years.
While the Savings Bank does not currently sell any of its
adjustable-rate one-to-four family residential loans, a
substantial portion of such loans in the Savings Bank's
portfolio would qualify for sale and securitization under
FHLMC, FNMA, and Government National Mortgage Association
("GNMA") guidelines. At September 30, 1996, $45.6 million or
44.8% of the Savings Bank's loans, before net items, were
fixed-rate one-to-four family residential mortgages, and $56.4
million or 55.2% were adjustable-rate one-to-four family
residential first mortgage loans. All of these adjustable
loans have interest rates that adjust annually after an
initial fixed-rate period of up to three years with a
substantial majority first adjusting two years after
origination.
As market demand for adjustable-rate mortgage loans has
decreased, the Savings Bank has combined origination of
shorter-term fixed-rate loans and one-year adjustable loans
with the purchase of low-risk CMOs and government-related
securities with a maturity or average life of five years or
less or with adjustable rates and investment in mutual funds.
All of the Savings Bank's CMOs are backed by U.S. government
securities and are first-tranche CMO investments to minimize
risk. The Savings Bank's mutual fund portfolio consists of
funds backed by short-term U.S. government securities and
adjustable-rate loans secured by one-to-four family
residences. In addition, during fiscal 1996 and 1995,
respectively, $1,307,000 and $845,000 of the Savings Bank's
automobile loans were originated by the Savings Bank.
Previously, during fiscal 1994, 1993, and 1992 the Savings
Bank purchased a total of $2.9 million of automobile loans
with contractual terms ranging from one to four years. During
fiscal 1995, the Savings Bank also began to originate one to four
family residential short-term Balloon mortgages, one to four family
residential bridge loans and commercial loans. Emphasis on shorter
term and adjustable-rate loans and shorter term securities helps the
Savings Bank limit its exposure to rising interest rates.
The Savings Bank anticipates continuing to follow this policy
of investing in shorter-term securities and loans for as long
as long-term interest rates remain at their current level or
lower and will reevaluate it if there is a material and
prolonged rise in interest rates. Notwithstanding the
foregoing, however, because the Savings Bank's
interest-bearing liabilities which mature or reprice within
short periods exceed its earning assets with similar
characteristics, material and prolonged increases in interest
rates generally would adversely affect net interest income,
while material and prolonged decreases in interest rates
generally, but to a lesser extent because of their
historically low levels, would have a positive effect on net
interest income.
At June 30, 1996, based on the most recent available
information provided by the OTS, it was estimated, on an
unaudited basis, that the Bank's net portfolio value ("NPV")
(the net present value of the Bank's cash flows from assets,
liabilities, and off-balance sheet items) would decrease 6%,
12%, 21%, and 29% and increase 5%, 10%, 12%, and 15% in the
event of 1%, 2%, 3%, and 4% increases and decreases in market
interest rates, respectively. These calculations indicate
that the Bank's NPV could be adversely affected by increases
in interest rates but could be favorably affected by decreases
in interest rates. Computations of prospective effects of
hypothetical interest rate changes are based on numerous
assumptions, including relative levels of market interest
rates, prepayments, and deposit run-offs and should not be
relied upon as indicative of actual results. Certain
shortcomings are inherent in such computations. In order to
mitigate its interest rate risk, the Bank maintains
substantial capital levels that management believes are
sufficient to sustain unfavorable movements in market interest
rates.
The OTS uses the NPV calculation to monitor institutions' interest rate
risk exposure ("IRR"). The OTS has promulgated regulations regarding
a required adjustment to an institution's risk-based capital based on
IRR. The application of the OTS' methodology quantifies IRR
as the change in the NPV which results from a theoretical 200
basis point increase or decrease in market interest rates. If
the NPV from either calculation would decrease by more than 2%
of the present value of the institution's assets, the
institution must deduct 50% of the amount of the decrease in
excess of such 2% in the calculation of risk-based capital.
The IRR regulations were originally effective as of January 1,
1994, subject to a two 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. However, the Director of the
OTS indicated that it would waive the capital deductions for
institutions with a greater than "normal" risk until the OTS
publishes an appeals process. If implemented, the Savings
Bank would still have exceeded the regulatory requirement.
Changes in Financial Condition
At September 30, 1996, the Company's assets totaled $204.0
million, as compared to $162.0 million at September 30, 1995.
Total assets increased by $42.0 million, or 25.9%, from
September 30, 1995 to September 30, 1996. The increase in
total assets during this period was principally funded through
$41.4 million in net proceeds from the stock offering.
The increase in total assets at September 30, 1996 was due
primarily to a $19.6 million, or 20.0% increase in the Savings
Bank's loans receivable, net and a $20.6 million, or 35.5%
increase in securities. The $19.6 million increases were the
result of the Company's election to invest a substantial
portion of its new and excess funds into loans, especially
one-to-four family residential, construction and consumer
loans and securities.
During the fiscal year ended September 30, 1996, total
deposits decreased by $2.8 million, or 2.1%, to $131.7
million. This decrease was the results of withdrawals from
deposit accounts maintained with the Savings Bank for payment
of The Company's common stock during the stock offering.
Primarily, as a result ofthe stock offering
and an increase in unrealized gain on securities available for sale,
net of deferred taxes, of $642,000, the Company's equity
increased by $43.7 million to $67.1 million at September 30,
1996 compared to $23.4 million at September 30, 1995.
Results of Operations for the Years Ended September 30, 1996,
1995, and 1994
The Company had net income of $2.1 million for the year ended
September 30, 1996 compared to net income of $2.0 million for
fiscal 1995. The $100,000 increase in net income represented
a 4.9% increase over fiscal 1995. Net income for fiscal 1996 was
materially affected by a one time special assessment to recapitalize
the Savings Association Insurance Fund ("SAIF"). Net Income would
have been approximately $2.6 million for the year ended September 30,
1996, a $600,000 or 29.5% increase over fiscal year ended September 30,
1995, had the Bank not paid $863,000, $535,000 net of taxes benefit,
for this one time assessment. The Company's net income of
$2.0 million for the fiscal year ended September 30, 1995
represented an increase of $700,000 or 54% over fiscal 1994.
Net income for fiscal 1994 was materially affected by three
one-time events: (1) the $1.2 million special interest
payment, (2) the $382,000 stock offering expense, and (3) a
$744,000 gain on the sale of FHLMC stock from the Company's
available for sale portfolio sold to partially fund the
special interest payment. But for these events, the Company's
net income for fiscal 1994 would have been $1.8 million and
net income for fiscal 1995 would have increased by
approximately $200,000 or 15.4% as compared to fiscal 1994.
Net Interest Income. The Company's net interest income is
determined by its interest rate spread (i.e., the difference
between the yields earned on its interest-earning assets and
the rates paid on its interest-bearing liabilities) and the
relative amounts of interest-earning assets and
interest-bearing liabilities.
Total interest income increased by $2.1 million, or 19.4%, in
the fiscal year ended September 30, 1996 compared to fiscal
1995. The increase was due primarily to a $1.5 million or 21.6%
increase in interest and fees on loans receivable as the average
balance increased by $13.6 million or 15.0% and the average
interest rate earned on loans increased 0.44% to 8.20%. Interest
income and dividends on securities held to maturity and securities
available for sale (including, mortgage backed securities, CMO,
Mutual Funds, and government-related securities) increased $320,000
or 8.5% resulting from an increase in the average balance of $9.0
million or 15.5%, while the average yield decreased from 6.35% to
5.96%. Interest income from other interes earning assets increased
$244,000 or 110.0% as the average balance increased $5.1 million
while the average yield declined form 5.33% to 5.03%.
Total interest income increased by $1.0 million, or 10.0%, for
the fiscal year ended September 30, 1995 compared to the
fiscal year ended September 30, 1994. This increase was due
primarily to a $588,000, or 9.1%, increase in interest and
fees on loans as the average balance increased by $7.6 million
or 9.1% while the average interest rate earned on loans
remained 7.76%. Interest income on mortgage-backed and
related securities (including collateralized mortgage
obligations) increased $143,000 or 7.3%, primarily resulting
from an increase in the average yield from 5.63% to 6.45%.
Interest income and dividends on securities (including mutual
funds and mortgage-backed securities available for sale)
increased by $460,000 or 38.2% for fiscal year 1995 compared
to fiscal year 1994 as the average balance increased by $5.1
million or 23.7% and the average yield increased to 6.22% from
5.57%. Interest income from other interest-earning assets
fell $185,000, or 45.6%, to $221,000 for 1995 as a result of a
62.5% decline in the average balance to $4.1 million.
Total interest expense increased by $682,000, or 10.9%, in
fiscal year ended September 1996 compared to fiscal year ended
September 30, 1995. Such increase was primarily the result of a
a 50 basis point (1.0% equaling 100 basis points)
increase in the average rate paid on interest bearing
liabilities in response to market conditions. The increase of
$2.2 million on average balance of deposits was offset by the
decrease of $2 million in average balance of FHLB advances that
the Savings Bank obtained from FHLB of Dallas in fiscal year 1995.
Interest expense on deposits and borrowings decreased by $171,000,
or 2.7%, during the fiscal year ended September 1995 compared to
fiscal 1994. Such decrease was due primarily to a decrease in
interest paid on deposits, as a result of 22 basis point decrease
in the average rate paid. The decrease in interest paid on deposits
was partially offset by the $148,000 o finterest paid on FHLB
advances that the Savings Bank obtained from the FHLB of Dallas
during fiscal 1995. The Savings Bank borrowed from the FHLB of
Dallas to meet short-term liquidity needs at interest rate that
were lower than funds then available in its traditional deposit
market.
The Savings Bank's net interest income increased by $1.5
million, or 30.6%, in fiscal 1996 compared to fiscal 1995.
The Savings Bank's interest rate spread was 2.04% in fiscal
1996 as compared to 2.49% in fiscal 1995. The changes in the
interest rate spread during the period were primarily the
result of a slightly increasing interest rate environment in
which the Savings Bank's interest-earning assets increased
less rapidly than interest-bearing liabilities.
As a result of the foregoing, the Savings Bank's net interest
income increased by $1.2 million, or 32.9%, during the fiscal
year ended September 30, 1995 compared to fiscal 1994. The
Savings Bank's interest rate spread was 2.49% for the fiscal
year ended September 30, 1995 compared to 1.81% for the fiscal
year ended September 30, 1994. However, but for the special
interest payment in fiscal 1994, net interest income would
have been $4.8 million and the interest rate spread for fiscal
1994 would have been 2.74%.
Provision for Loan Losses. The Savings Bank's provision for
loan losses was $20,000 during the fiscal year ended
September 30, 1996 compared to $30,000 and $25,000 during
fiscal 1995 and 1994, respectively. Provisions for loan
losses are charged to earnings to bring the total allowance to
a level deemed appropriate by management based on the volume
and type of lending conducted by the Savings Bank. Provisions
in fiscal 1995 and 1996 were made in order to adjust the
allowance for the increased volume of mortgage loans as well
as the expansion of consumer and commercial lending.
Commercial and consumer loans traditionally have a higher rate
of default and are secured by collateral that often
depreciates or is less liquid than the real estate securing
mortgage loan.
The Savings Bank's methodology for evaluating the adequacy of
its allowance for loan losses, which conforms with GAAP,
considers collateral valuation, changes in the loan portfolio
mix and certain economic indicators, causing it to be a
leading indicator of inherent risk in the loan portfolio.
Accordingly, it is not necessarily reflective of past trends
in charge-offs and other factors. The methodology
incorporates economic indicators such as growth in personal
income and unemployment rates as well as other economic
indicators affecting the Savings Bank's market area and
considers higher risk loan groups, including growth in the
Savings Bank's consumer and multi-family and non-residential
loan portfolios.
Non-Interest Income. Non-interest income was $188,000 in
fiscal 1996, an increase of $56,000, or 42.4%, compared to
non-interest income of $132,000 in fiscal 1995. The primary
difference in non-interest income between fiscal 1996 and
fiscal 1995 was the $55,000 net gain on the sale of securities
in fiscal 1996 compared to a $0 net gain on the sale of
securities in fiscal 1995. Non-interest income amounted to
$132,000 for the fiscal year ended September 30, 1995 compared
to $752,000 for fiscal 1994. The decrease was due primarily
to a $646,000 decrease in net gains on sales of securities.
The gains on sales of securities in fiscal 1994 were primarily
the result of the sale of FHLMC stock from the Savings Bank's
available for sale portfolio that was sold in order to
partially fund the special interest payment.
Non-Interest Expenses. The primary reasons for the increase
in non-interest expenses in fiscal 1996 compared to fiscal
1995 were the $863,000 one-time special assessment of 65.7
basis points on SAIF insured deposits as of March 31, 1995 and
the $314,000 increase in compensation and benefits which
resulted from increased personnel, merit raises, and $220,000
in ESOP expense which was new in fiscal 1996. Non-interest
expenses amounted to $1.7 million during the fiscal year ended
September 30, 1995, a $168,000, or 9.1%, decrease over the
$1.8 million of non-interest expenses during the year ended
September 30, 1994. Non-interest expenses during the year
ended September 30, 1994 exceeded non-interest expenses in
fiscal 1993 by $332,000 or 22.0%. The primary reason for the
decrease in non-interest expenses in fiscal 1995 compared to
fiscal 1994 was the decrease of $339,000 or 45.4% in other
expenses which were partially offset by an increase of
$145,000 or 20.9% in compensation and benefits. Other
expenses decreased substantially in fiscal 1995 compared to
fiscal 1994 because of the $382,000 stock offering expense
incurred in fiscal 1994. The primary reasons for the 1995
increase in the compensation and benefits expense were a
modification in the formula used to calculate annual bonus
payments from 7% to 15% of total salaries and the addition of
two employees including Vice President Mark Burleson to head
the consumer and commercial lending department.
Income Taxes. The provision for income taxes was $1.2
million, $1.1 million, and $1.0 million in fiscal 1996, 1995,
and 1994, respectively. The changes in such respective
amounts primarily reflect the fluctuations in levels of income
before income taxes of the Company during those fiscal years
of $3.3 million, $3.2 million, and $2.5 million, respectively.
See Note 10 of the Notes to Consolidated Financial Statements.
Liquidity and Capital Resources
The Savings Bank is required under applicable federal
regulations to maintain specified levels of "liquid"
investments in qualifying types of United States Government,
federal agency, and other investments having maturities of
five years or less. Current OTS regulations require that a
savings association maintain liquid assets of not less than 5%
of its average daily balance of net withdrawable deposit
accounts and borrowings payable in one year or less, of which
short-term liquid assets must consist of not less than 1%.
Monetary penalties may be imposed for failure to meet
applicable liquidity requirements. At September 30, 1996, the
Savings Bank's liquidity, as measured for regulatory purposes,
was in excess of the minimum OTS requirement.
Cash was generated by the Savings Bank's operating activities
during the years ended September 30, 1996, 1995, and 1994,
primarily as a result of net income. The adjustments to
reconcile net income to cash provided by operating activities
during the periods presented consisted primarily of
amortization of premiums and discounts, proceeds from the sale
of loans, and increases or decreases in interest and dividends
receivable, prepaid income taxes, accrued interest payable,
and accrued expenses and other liabilities. The primary
investing activity of the Savings Bank is lending, which is
funded with cash provided by operations, as well as principal
collections and maturities of interest-bearing deposits in
banks. For additional information about cash flows from the
Savings Bank's operating, financing, and investing activities,
see the Statements of Cash Flows included in the Consolidated
Financial Statements.
At September 30, 1996, the Savings Bank had outstanding $2.1
million in commitments to originate loans and $1.4 million in
commitments under unadvanced construction loans. At the same
date, the total amount of certificates of deposit which are
scheduled to mature by September 30, 1997 was $88.4 million.
The Savings Bank believes that it has adequate resources to
fund commitments as they arise and that it can adjust the rate
on savings certificates to retain deposits in changing
interest rate environments. If the Savings Bank requires
funds beyond its internal funding capabilities, advances from
the FHLB of Dallas are available as an additional source of
funds.
The Savings Bank is required to maintain specified amounts of
capital pursuant to OTS regulations. The capital standards
generally require the maintenance of regulatory capital
sufficient to meet a tangible capital requirement, a core
capital requirement, and a risk-based requirement. At
September 30, 1996, the Savings Bank's tangible and core
capital totaled $41.8 million, or 22.8% of adjusted total
assets, which exceeded the respective minimum requirements at
that date by approximately $39.1 million and $36.3 million,
respectively, or 21.3% and 19.8% of total assets,
respectively. The Savings Bank's risk-based capital totaled
$42.4 million at September 30, 1996, or 50.8% of risk-weighted
assets, which exceeded the current requirement of 8.0% by
approximately $35.7 million, or 42.8% of risk-weighted assets.
Pending Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board
("FASB") issued SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of.
SFAS No. 121 establishes accounting standards for the
impairment and disposal of long-lived assets and certain
identifiable intangibles. It requires that such assets be
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset
may not be recoverable. If the review for recoverability,
based on undiscounted expected future cash flows, indicates
that impairment exists, the loss should be measured based on
the fair value of the asset. The Company adopted SFAS
No. 121, as was required, effective October 1, 1996, with no
significant impact on the Company's financial position or on
the results of its operations as long-lived assets are not
significant.
In May 1995, the FASB issued SFAS No. 122, Accounting for
Mortgage Servicing Rights, an amendment to SFAS No. 65. This
statement eliminates the accounting distinction between rights
to service mortgage loans for others that are acquired through
loan origination activities and those acquired through
purchase transactions. The Company adopted SFAS No. 122, as
was required, effective October 1, 1996 with no impact on the
financial statements as the Company is not currently
participating in the sale or securitization of any loans in
its loan portfolio.
In October 1995, the FASB issued SFAS No. 123, Accounting for
Stock-Based Compensation. SFAS No. 123 established a fair
value based method for accounting for stock based compensation
plans but still granted entities the option of accounting for
stock based compensation plans under the provisions of APB
Opinion No. 25 if they provide disclosures required by SFAS
No. 123. The Company adopted the provisions of this Standard,
as was required, effective October 1, 1996, and elected to
account for these plans under the provisions of APB No. 25 and
will provide the required disclosures in future periods.
In June 1996, the FASB issued SFAS No. 125, Accounting for
Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. SFAS No. 125 provides
accounting and reporting standards for transfers and servicing
of financial assets and extinguishments of liabilities based
on consistent application of a financial-components approach
that focuses on control. Under that approach, after a
transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities
it has incurred, derecognizes financial assets when control
has been surrendered, and derecognizes liabilities when
extinguished.
This statement is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring
after December 31, 1996, and is to be applied prospectively.
Earlier or retroactive application is not permitted.
The Company will adopt the provisions of the Standard on
January 1, 1997. Based on the Company's current operating
activities, management does not believe that the adoption of
this statement will have a material impact on the Company's
financial condition or results of operations.
Impact of Inflation and Changing Prices
The financial statements and related financial data presented
herein have been prepared in accordance with GAAP, which
requires the measurement of financial position and operating
results in terms of historical dollars, without considering
changes in relative purchasing power over time due to
inflation.
Unlike most industrial companies, virtually all of the Savings
Bank's assets and liabilities are monetary in nature. As a
result, interest rates generally have a more significant
impact on a financial institution's performance than does the
effect of inflation.
Average Balance, Interest, and Average Yields and Rates
The following table sets forth certain information relating to
the Company's average interest-earning assets and
interest-bearing liabilities and reflects the average yield on
assets and the average cost of liabilities for the periods and
at the date indicated. Such yields and costs are derived by
dividing income or expense by the average monthly balance of
assets or liabilities, respectively, for the periods
indicated.
The table also presents information for the periods indicated
and at September 30, 1996 with respect to the difference
between the weighted average yield earned on interest-earning
assets and the weighted average rate paid on interest-bearing
liabilities, or "interest rate spread," which savings
institutions have traditionally used as an indicator of
profitability. Another indicator of an institution's net
interest income is its "net yield on interest-earning assets."
which is its net interest income divided by the average
balance of interest-earning assets. Net interest income is
affected by the interest rate spread and by the relative
amounts of interest-earning assets and interest-bearing
liabilities. When interest-earning assets approximate or
exceed interest-bearing liabilities, any positive interest
rate spread will generate net interest income.
As of Year Ended September 30,
September 30, 1996
1996
Weighted Average Yield/
Yield/Rate Balance Interest Rate
(Dollars in thousands)
Interest-earning
assets:
Loans receivable,
net 7.83 104,425 8,563 8.20
Mortgage-backed
and related
securities (1) 6.57 41,171 2,658 6.46
Securities (2) 6.08 27,167 1,416 5.21
Other interest-
earning assets (3 4.00 9,242 465 5.03
Total interest-
earning assets 7.25 182,005 13,102 7.20
Non-interest-earning
assets: 5,214
Total assets 187,219
Interest-bearing
liabilities:
Transaction accounts 2.99 26,507 621 2.79
Certificates of
deposit 5.41 107,848 6,309 5.84
Borrowings 0.00 250 19 7.60
Total interest-bearing
liabilities 5.08 134,605 6,949 5.16
Non-interest-bearing
liabilities 3,531
Total liabilities 138,136
Equity 49,083
Total liabilities and
equity 187,219
Net interest income;
interest rate
spread 2.17 6,153 2.04
Net interest
margin (4) 3.38
Average interest-earning
assets to average
interest-bearing
liabilities 135.21
Year Ended September 30,
1995
Average Yield/
Balance Interest Rate
Interest-earning assets:
Loans receivable, net $ 90,778 $ 7,041 7.76%
Mortgage-backed and related securities (1) 32,422 2,092 6.45
Securities (2) 26,721 1,662 6.22
Other interest-earning assets (3) 4,149 221 5.33
Total interest-earning assets $154,070 $11,016 7.15
Non-interest-earning assets 5,288
Total assets $159,358
Interest-bearing liabilities:
Transaction accounts $ 19,823 $ 549 2.77
Certificates of deposit 112,278 5,570 4.96
Borrowings 2,333 148 6.34
Total interest-bearing liabilities $134,434 $ 6,267 4.66
Non-interest-bearing liabilities 3,209
Total liabilities $137,643
Equity 21,715
Total liabilities and equity $159,358
Net interest income; interest rate spread $ 4,749 2.49%
Net interest margin (4) 3.08%
Average interest-earning assets to average
interest-bearing liabilities 114.61%
Year Ended September 30,
1994 (5)
Average Yield/
Balance Interest Rate
Interest-earning assets:
Loans receivable, net $ 83,178 $ 6,453 7.76%
Mortgage-backed and related secruties (1) 34,585 1,948 5.63
Securities (2) 21,598 1,203 5.57
Other interest-earning assets (3) 11,050 406 3.67
Total interest-earning assets $150,411 $10,011 6.66%
Non-interest-earning assets 2,601
Total assets $153,012
Interest-bearning liabilities:
Transaction accounts $ 26,179 $ 925 3.53%
Certificates of deposit 106,357 5,513 5.18
Borrowings 0 0 0
Total interest-bearing liabilities $132,536 $ 6,438 4.85%
Non-interest-bearing liabilities 1,527
Total liabilities $134,063
Equity: 18,949
Total liabilities and equity $153,012
Net interest income; interest rate spread $ 3,573 1.81%
Net interest margin (4) 2.37%
Average interest-earning assets to average
interest-bearing liabilities 113.49%
(1) Consists of mortgage-backed and related securities
available for sale and held to maturity.
(2) Consists of securities available for sale and securities
held to maturity.
(3) Consists primarily of interest-bearing deposits.
(4) Net interest margin is net interest income divided by
average interest-earning assets.
(5) Interest expense on deposits, net interest income,
interest rate spread and the net interest margin were
adversely affected by the $1.2 million special
interest payment.
Rate/Volume Analysis
The following table describes the extent to which changes in
interest rates and changes in volume of interest-related
assets and liabilities have affected Community's interest
income and expense during the periods indicated. For each
category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable
to (i) changes in volume (change in volume multiplied by prior
year rate), (ii) changes in rate (change in rate multiplied by
prior year volume), and (iii) total change in rate and volume.
The combined effect of changes in both rate and volume has
been allocated proportionately to the change due to rate and
the change due to volume.
1996 Compared to 1995 1995 Compared to 1994
Inc Inc
Inc (Dec) Total Inc (Dec) Total
(Dec) Due to Inc (Dec) Due to Inc
Due to Vol (Dec) Due to Vol (Dec)
Rate Rate
(In Thousands)
Interest-Earning
Assets:
Loans 464 1,106 1,570 0 588 588
Mortgage-backed
and related
securities(1) 1 565 566 252 (108) 144
Securities (2) (274) 28 (246) (428) 887 459
Other interest-
earning assets (12) 256 244 178 (363) (185)
Total interest-
earning assets 179 1,955 2,134 2 1,004 1,006
Interest-Bearing
Liabilities:
Deposits and
borrowings (3) 675 8 683 (248) 77 (171)
Increase (decrease)
in net interest
income (3) (496) 1,947 1,451 250 927 1,177
1994 Compared to 1993
Inc Inc
(Dec) (Dec) Total
Due to Due to Inc
Rate Vol (Dec)
Interest-Earning
assets:
Loans (619) 74 (545)
Mortgage-backed and
related securities (1) 6 7 13
Securities (2) 243 168 411
Other interest-
earning assets (45) (99) (144)
Total Interest-
earning assets (415) 150 (265)
Interest-Bearing
Liabilities:
Depostis and
borrowings 1,496 (370) 1,126
Increase (decrease)
in net interest
income (3) (1,911) 520 (1,391)
(1) Consists of mortgage-backed and related securities available for sale and
held to maturity.
(2) Consists of securities available for sale and securities held to maturity
for 1995 and 1994.
(3) A special interest payment of $1.2 million in fiscal 1994 increased the
rate of deposits and borrowings and decreased the net interest
during that period.
Liquidity and Capital Resources
The Company continues to maintain a high level of liquid
assets in order to meet its funding requirements. At
September 30, 1996 the Company had approximately $4.2 million
in cash on hand and interest-bearing deposits in other banks
which represented 2.06$ of total assets. At September 30,
1996, the Company's level of liquid assets, as measured for
regulatory compliance purposes was 9.47%, or $5.8 million, in
excess of the minimum liquidity requirement of 5%.
At September 30, 1996, the Company had $67 million of total
equity or 32.9% of total assets. The Company continues to
exceed its regulatory capital requirements ratios at September
30, 1996. Tangible capital and core capital were $41.8
million, which represented 22.8% of adjusted total assets and
risk-based capital was $42.4 million which represented 50.8%
of total risk-weighted assets at September 30, 1996. Such
amounts exceeded the minimum required ratios of 1.5%, 3.0%,
and 8%, respectively, by 21.3%, 19.8%, and 42.8%,
respectively. At September 30, 1996, the Company continued to
meet the definition of a "well-capitalized" institution the
highest of the five categories under the FDICIA prompt
corrective action standards.
COMMUNITY FEDERAL BANCORP, INC.
Consolidated Financial Statements
as of September 30, 1996 and 1995
Together With
Auditor's Report
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Community Federal Bancorp, Inc.:
We have audited the accompanying consolidated statements of
financial condition of Community Federal Bancorp, Inc. (a
Delaware corporation) AND SUBSIDIARY as of September 30, 1996
and 1995 and the related consolidated statements of income,
stockholders' equity, and cash flows for the three years in
the period ended September 30, 1996. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management,
as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of Community Federal Bancorp, Inc. and Subsidiary at
September 30, 1996 and 1995 and the results of their
operations and their cash flows for each of the three years
ended September 30, 1996, in conformity with generally
accepted accounting principles.
Birmingham, Alabama
October 25, 1996
COMMUNITY FEDERAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
AS OF SEPTEMBER 30, 1996 AND 1995
ASSETS
1996 1995
CASH AND CASH EQUIVALENTS $ 1,764,355 $ 1,146,100
INTEREST-BEARING DEPOSITS IN BANKS 2,441,324 1,749,000
SECURITIES AVAILABLE FOR SALE, at fair value 75,111,784 25,124,584
SECURITIES HELD TO MATURITY, at amortized
Cost (estimated fair value of $4,625,305 and
$33,501,362, respectively 4,755,702 33,836,768
LOANS RECEIVABLE, net 117,630,885 97,988,023
ACCRUED INTEREST AND DIVIDENDS RECEIVABLE 1,343,947 1,159,165
REAL ESTATE OWNED 0 138,972
PREMISES AND EQUIPMENT, net 607,267 664,748
PREPAID INCOME TAXES 0 44,212
OTHER ASSETS 361,678 190,479
TOTAL ASSETS $204,016,942 $162,042,051
LIABILITIES AND STOCKHOLDER'S EQUITY
DEPOSITS $131,740,433 $134,554,504
FEDERAL HOME LOAN BANK ADVANCES 0 1,000,000
OTHER LIABILITIES:
Accrued interest payable 616,422 663,472
Advances from borrowers for taxes and insurance 444,784 392,844
Deferred income taxes payable 1,893,037 1,559,229
Income taxes payable 9,376 0
Accrued expenses and other liabilities 2,173,994 445,102
Total liabilities 136,878,046 138,615,151
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS'S EQUITY:
Preferred stock, no par value; 2,000,000
shares authorized; shares issued and
outstanding--none 0 0
Common stock, par value $.01 per share;
10,000,000 shares authorized, 4,628,750
shares issued 46,288 0
Additional paid-in capital 45,006,311 0
Retained earnings 22,511,930 21,030,744
Unearned compensation (3,464,110) 0
Unrealized gain on securities available for
sale, net 3,038,477 2,396,156
Total stockholders' equity 67,138,896 23,426,900
Total liabilities and stockholders' equity $204,016,942 $162,042,051
The accompanying notes are an integral part of these statements.
COMMUNITY FEDERAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1005, AND 1994
1996 1995 1994
INTEREST INCOME:
Interest and fees on loans:
Mortgage loans $ 8,217,595 $ 6,706,168 $ 6,300,230
Consumer loans 262,356 290,673 152,545
Commercial loans 130,510 43,870 0
Interest and dividends on
securities held to maturity 824,987 1,432,584 3,151,376
Interest and dividends on
securities available for sale 3,249,772 2,321,642 0
Other interest income 464,598 220,885 406,429
Total interest income 13,149,818 11,015,822 10,010,580
INTEREST EXPENSE:
Deposits 6,930,124 6,119,346 6,438,131
Other borrowings 19,410 147,970 0
Total interest expense 6,949,534 6,267,316 6,438,131
Net interest income 6,200,284 4,748,506 3,572,449
PROVISION FOR LOAN LOSSES 20,000 30,000 25,000
Net interest income after
provision for loan losses 6,180,284 4,718,506 3,547,449
NONINTEREST INCOME:
Gain on sale of securities
available for sale, net 54,838 0 646,168
Loan servicing fees 67,254 62,971 62,995
Other income 65,656 69,428 43,215
Total noninterest income 187,748 132,399 752,378
NONINTEREST EXPENSES:
Compensation and benefits 1,153,133 839,466 694,431
Special SAIF assessment 863,835 0 0
Deposit insurance premium 317,896 305,811 300,881
Occupancy and equipment 134,745 118,774 100,817
Gain on real estate owned, net (15,119) (217) (3,318)
Other expenses 580,990 408,031 746,839
Total noninterest expenses 3,035,480 1,671,865 1,839,650
Income before income taxes and
cumulative effect of change in
accounting principle 3,332,552 3,179,040 2,460,177
PROVISION FOR INCOME TAXES 1,184,294 1,144,334 1,012,428
INCOME BEFORE CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE 2,148,258 2,034,706 1,447,749
CUMULATIVE EFFECT AT OCTOBER 1, 1994
OF CHANGE IN ACCOUNTING FOR
INCOME TAXES 0 0 130,800
NET INCOME $ 2,148,258 $ 2,034,706 $ 1,316,949
EARNINGS PER SHARE $.27 N/A N/A
The accompanying notes are an integral part of these statements.
COMMUNITY FEDERAL BANCOPR, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995, AND 1994
Additional
Common Paid-In Retained
Stock Capital Earnings
BALANCE, September 30, 1993 0 0 $17,679,089
Net income 0 0 1,316,949
Change in net unrealized depreciation
on certain marketable equity securities 0 0 0
Unrealized gain on securities available
for sale 0 0 0
BALANCE, September 30, 1994 0 0 18,996,038
Net income 0 0 2,034,706
Change in unrealized gain on securities
available for sale, net 0 0 0
BALANCE, September 30, 1995 0 0 21,030,744
Net income 0 0 2,148,258
Change in unrealized gain (loss) on
securities, due to the reclassification
of securities from held to maturity
to available for sale, net 0 0 0
Issuance of common stock 46,288 44,954,433 0
Change in unrealized gain on securities
available for sale, net 0 0 0
Amortization of unearned compensation 0 51,878 0
Dividends declared ($.15 per share) 0 0 (667,072)
BALANCE, September 30, 1996 $46,288 $45,006,311 $22,511,930
Net Unrealized
Depreciation
on Certain
Unearned Marketable
Compensation Equity Securities
BALANCE, September 30, 1993 0 $(28,989)
Net Income
Change in net unrealized depreciation
on certain marketable equity securities 0 0
Unrealized gain on securities available
for sale 0 28,989
BALANCE, September 30, 1994 0 0
Net income 0 0
Change in unrealized gain on securities
available for sale, net 0 0
BALANCE, September 30, 1995 0 0
Net income 0 0
Change in unrealized gain (loss) on
securities, due to the reclassification
of securities from held to maturity to
available for sale, net 0 0
Issuance of Common stock (3,632,000) 0
Change in unrealized gain on securities
available for sale, net 0 0
Amortization of unearned compensation 167,890 0
Dividends declared ($.15 per share) 0 0
BALANCE, September 30, 1996 $(3,464,110) 0
Unrealized
Gain on
Securities
Available for
Sale, Net Total
BALANCE, September 30, 1993 $ 0 $17,650,100
Net income 0 1,316,949
Change in net unrealized depreciation
certain marketable equity securities 0 28,989
Unrealized gain on securities available
for sale 1,398,075 1,398,075
BALANCE, September 30, 1994 1,398,075 20,394,113
Net income 0 2,034,706
Change in unrealized gain on securities
available for sale, net 998,081 998,081
BALANCE, September 30, 1995 2,396,156 23,426,900
Net income 0 2,148,258
Change in unrealized gain (loss) on
securities, due to the reclassification
of securities from held to maturity to
available for sale, net (28,115) (28,115)
Issurance of common stock 0 41,368,721
Change in unrealized gain on securities
available for sale, net 670,436 670,436
Amortization of unearned compensation 0 219,768
Dividends declared ($.15) per share) 0 (667,072)
BALANCE, September 30, 1996 $3,038,477 $67,138,896
The accompanying notes are an integral part of these statements.
COMMUNITY FEDERAL BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995, AND 1994
1996 1995 1994
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 2,148,258 $ 2,034,706 $1,316,949
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation 63,832 55,961 43,084
Deferred income tax
provision (benefit) (281,057) 8,634 63,600
Cumulative effect of
change in accounting for
taxes 0 0 130,800
Amortization of deferred
loan fees and costs, net 47,949 44,216 30,062
Amortization of premiums
and discounts, net (84,616) (96,389) (137,354)
Amortization of unearned
compensation 219,768 0 0
Provision for losses on loans 20,000 30,000 25,000
FHLB stock dividends (72,589) (70,900) (44,700)
(Gain) loss on sale of loans 0 1,444 (200)
Loss on disposal of equipment 0 1,299 0
Gain on sale of securities
available for sale, net (54,838) 0 (646,168)
Loss on sale of interest
bearing deposits 0 558 0
Gain on sale of real estate
owned, net (15,119) 0 (4,660)
Proceeds from sale of loans 0 220,856 130,000
Changes in assets and liabilities:
Decrease (increase) in other assets (171,199) 8,727 (42,576)
Decrease (increase) in interest
and dividends receivable (184,782) (178,393) (187,098)
Decrease (increase) in prepaid
income taxes 53,588 150,299 127,771
Increase (decrease) in accrued
interest payable (47,050) 303,178 31,699
Increase (decrease) in accrued
expenses and other liabilities 1,728,892 (64,534) (20,189)
Total adjustments 1,222,779 414,956 (500,929)
Net cash provided by operating
activities 3,371,037 2,449,662 816,020
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of real
estate owned 190,000 0 426,000
Proceeds from maturities
of securities held to
maturity 1,921,600 3,075,834 (5,298,025)
Proceeds from maturities,
principal collections,
and calls of securities
available for sale 13,165,134 3,595,826 0
Proceeds from sales of
securities held to maturity 2,621,913 0 2,300,005
(Purchase of) proceeds
from maturities of
interest-bearing deposits
in banks, net (692,324) 490,393 (655,932)
(Purchase of) proceeds
from sale of property and
equipment, net (6,351) (227,410) (7,766)
Net change in real estate
owned (2,031) 2,464 (39,961)
Loan (originations) and
principal repayments, net (19,744,689) (14,015,344) 535,018
Purchase of loans 0 0 (900,000)
Purchase of securities
available for sale (36,586,411) 0 0
Purchase of securities
held to maturity (559,141) 0 (13,407,706)
Net cash used by investing
activities (39,692,300) (7,078,237) (17,048,367)
CASH FLOWS FROM FINANCING
ACTIVITIES:
(Decrease) increase in
customer deposits, net (2,814,071) 2,565,448 2,953,968
Proceeds from (repayments of)
FHLB advances, net (1,000,000) 1,000,000 0
(Decrease) increase in advances
from borrowers for taxes
and insurance 51,940 28,055 (217)
Proceeds from stock offering 41,368,721 0 0
Dividends paid (667,072) 0 0
Net cash provided by financing
activities 36,939,518 3,593,503 2,953,751
Net increase (decrease) in
cash and cash equivalents 618,255 (1,035,072) (13,278,596)
CASH AND CASH EQUIVALENTS,
beginning of year 1,146,100 2,181,172 15,459,768
CASH AND CASH EQUIVALENTS,
end of year $ 1,764,355 $ 1,146,100 $ 2,181,172
SUPPLEMENTAL CASH FLOW
INFORMATION:
Cash paid for:
Interest on deposits
and other borrowings $ 7,049,843 $ 5,964,138 $ 6,406,432
Income taxes $ 1,185,000 $ 975,000 $ 1,076,599
SUPPLEMENTAL NONCASH INVESTING
AND FINANCING ACTIVITIES:
Transfer of mortgage
loans to real estate owned $ 33,878 $ 0 $ 358,884
Change in net unrealized
depreciation on certain
marketable equity securities $ 0 $ 0 $ 28,989
Transfer of securities held
for sale, securities, and
mortgage-backed and related
securities to securities
available for sale at
fair value $ 0 $ 0 $27,105,810
Change in unrealized net gain
on securities available for
sale, net of deferred taxes $ 642,321 $ 998,081 $ 1,398,075
Transfer of securities from
held to maturity to available
for sale at fair value $27,758,607 $ 0 $ 0
The accompanying notes are an integral part of these statements.
COMMUNITY FEDERAL BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996 and 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization, Nature of Operations, and Principles of
Consolidation Community Federal Bancorp, Inc. (the "Company")
was incorporated in the State of Delaware in November 1995,
for the purpose of becoming a holding company to own all of
the outstanding capital stock of Community Federal Savings
Bank (the "Bank") upon the Bank's conversion from a federally
chartered mutual savings association to a federally chartered
stock savings association (the "Conversion"). The Bank was
converted to a federally chartered stock organization in
November 1995, through the sale of all of its common stock to
the Company. The accounting for the conversion is in a manner
similar to that utilized in a pooling of interests (see
Note 18).
The accompanying consolidated financial statements include the
accounts of the Company and the Bank. All significant
intercompany balances and transactions have been eliminated in
consolidation.
The Bank is primarily engaged in the business of obtaining
funds in the form of various savings deposits products and
investing those funds in mortgage loans or single family real
estate and, to a lesser extent, in consumer and commercial
loans. The Bank operates from its office in Tupelo,
Mississippi, and originates the majority of its loans in its
market area.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents
Cash and cash equivalents of $1,764,355 and $1,146,100 at
September 30, 1996 and 1995, respectively, consist of cash on
hand of $155,000 and $135,000 at September 30, 1996 and 1995,
respectively, and cash due from and on deposit with other
financial institutions of $1,609,355 and $1,011,100 at
September 30, 1996 and 1995, respectively. The cash due from
and on deposit with other financial institutions primarily
consisted of an interest-bearing account with the Federal Home
Loan Bank ("FHLB").
Securities
Securities classified as securities held to maturity are
carried at amortized cost, adjusted for amortization of
premiums and accretion of discounts, using the level yield
method over the estimated remaining life. The Company has the
ability and positive intent to hold these securities to
maturity.
All securities not considered held to maturity have been
designated as available for sale and are carried at fair
value. The unrealized difference between amortized cost and
fair value on securities available for sale is exclude from
earnings and is reported, net of deferred taxes, as a
component of equity. Securities available for sale includes
securities that Management intends to use as part of its
asset/liability management strategy; or that may be sold in
response to changes in interest rates, changes in prepayment
risk, liquidity needs, or for other purposes.
Amortization of premium and accretion of discount are computed
under the interest method. The adjusted cost of the specific
security sold is used to compute gain or loss on the sale of
securities.
On September 30, 1994, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 115, Accounting
for Certain Investments in Debt and Equity Securities. In
adopting SFAS No. 115, securities and mortgage-backed and
related securities were classified as either available for
sale or investment based on Management's current intent.
Loans Receivable
Loans receivable are stated at their unpaid principal
balances, less the allowance for loan losses and net deferred
loan origination fees and discounts.
The Bank ceases accrual of interest on substantially all loans
when payment on a loan is in excess of 90 days past due. An
allowance is established by a charge to interest income equal
to all interest previously accrued but unpaid. Interest
income is subsequently recognized only to the extent that cash
payments are received until, 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; in which case the loan is returned to accrual
status.
The allowance for loan losses is increased by charges to
income and decreased by loan charge-offs, net of recoveries.
The allowance for loan losses is maintained 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 collectibility 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 the underlying collateral.
Though management believes the 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.
The Bank adopted SFAS No. 114, Accounting by Creditors for
Impairment of a Loan, and SFAS No. 118, Accounting by
Creditors for Impairment of a Loan--Income Recognition and
Disclosures, as of October 1, 1995. SFAS No. 114 requires
that certain impaired loans be measured based on the present
value of expected future cash flows discounted at the loans'
original effective interest rate. As a practical expedient,
impairment may be measured based on the loan's observable
market price or the fair value of the collateral if the loan
is collateral dependent. When the measure of the impaired
loan is less than the recorded investment in the loan, the
impairment is recorded through a provision added to the
allowance for loan losses. The Bank had previously measured
the allowance for loan losses using methods similar to those
prescribed in SFAS No. 114. As a result of adopting these
statements, no additional provision to the allowance for loan
losses was required as of October 1, 1995. Because the Bank's
loan portfolio consists primarily of one-to-four family
residential mortgages and consumer installment loans, which
are exempt from SFAS No. 114 when evaluated collectively for
impairment as is done by the Bank, the Bank had no loans
designated as impaired under the provisions of SFAS No. 114 at
September 30, 1996.
Loan Origination Fees and Related Costs
Loan fees and certain direct costs of loan origination are
deferred, and the net fee or cost is recognized as an
adjustment to interest income using the level yield method
over the contractual life of the loan.
Real Estate Owned
Real estate owned consists of properties sold under mortgage
loans to facilitate sales of foreclosed properties. The
recognition of gains and losses on the sale of real estate
owned is dependent upon whether the nature and terms of the
sale and future involvement of the Bank in the property meet
certain requirements. If the transaction does not meet these
requirements, income recognition is deferred and recognized
under an alternative method in accordance with SFAS No. 66,
Accounting for Sales of Real Estate.
Real estate owned is carried at the lower of the recorded
investment in the loan or the fair value of the property, less
estimated costs of disposition. The recorded investment is
the sum of the outstanding principal loan balance plus any
accrued interest which has not been received and acquisition
costs associated with the property less any write-down. 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 foreclosure. Subsequent to
foreclosure, real estate owned is evaluated on an individual
basis for changes in fair value. Future declines in the fair
value of the asset, less costs of disposition below its
carrying amount, increase the valuation allowance account.
Future increases in the fair value of the asset, less costs of
disposition above its carrying amount, reduce the valuation
allowance account, but not below zero. Increases or decreases
in the valuation allowance account are charged or credited to
income. Costs relating to improvement of the property
incurred subsequent to acquisition are capitalized, whereas
costs relating to the holding of property are expensed. The
amounts expensed in fiscal years 1996, 1995, and 1994 were
$8,929, $457, and $1,140, respectively. The amounts
capitalized in 1996, 1995, and 1994, were $2,031, $0, and
$39,961, respectively.
Premises and Equipment
Land is carried at cost. Building, furniture, fixtures, and
equipment are carried at cost, less accumulated depreciation.
Building, furniture, fixtures, and equipment are depreciated
using the straight-line or accelerated methods over the
estimated useful lives of the assets. The estimated useful
lives for furniture, fixtures, and equipment range from 3 to
20 years and for buildings and improvements range from 10 to
40 years.
Income Taxes
Effective October 1, 1993, the Company adopted SFAS No. 109,
Accounting for Income Taxes. The Company had previously
recorded income tax expense following SFAS No. 96, Accounting
for Income Taxes. SFAS No. 109, as well as SFAS No. 96,
requires the application of the asset and liability method of
accounting for income taxes. The cumulative effect of
adopting SFAS No. 109 was to decrease net income by $130,800
in fiscal year 1994.
Under the asset and liability method, balance sheet amounts of
deferred income taxes are recognized on the temporary
differences between the bases of assets and liabilities as
measured by tax laws and their bases as reported in the
financial statements. Recognition of deferred tax asset
balance sheet amounts is based on management's belief that it
is more likely than not that the tax benefit associated with
certain temporary differences will be realized. Deferred tax
expense or benefit is then recognized for the change in
deferred tax liabilities or assets between periods. Under
SFAS No. 109, the effect on deferred taxes of a change in tax
rates is recognized in income in the period that includes the
enactment date.
Pending Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board
("FASB") issued SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of.
SFAS No. 121 establishes accounting standards for the
impairment and disposal of long-lived assets and certain
identifiable intangibles. It requires that such assets be
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset
may not be recoverable. If the review for recoverability,
based on undiscounted expected future cash flows, indicates
that impairment exists, the loss should be measured based on
the fair value of the asset. The Company adopted SFAS
No. 121, as was required, effective October 1, 1996, with no
significant impact on the Company's financial position or on
the results of its operations as long-lived assets are not
significant.
In May 1995, the FASB issued SFAS No. 122, Accounting for
Mortgage Servicing Rights, an amendment to SFAS No. 65. This
statement eliminates the accounting distinction between rights
to service mortgage loans for others that are acquired through
loan origination activities and those acquired through
purchase transactions. The Company adopted SFAS No. 122, as
was required, effective October 1, 1996 with no impact on the
financial statements as the Company is not currently
participating in the sale or securitization of any loans in
its loan portfolio.
In October 1995, the FASB issued SFAS No. 123, Accounting for
Stock-Based Compensation. SFAS No. 123 established a fair
value based method for accounting for stock based compensation
plans but still granted entities the option of accounting for
stock based compensation plans under the provisions of APB
Opinion No. 25 if they provide disclosures required by SFAS
No. 123. The Company adopted the provisions of this Standard,
as was required, effective October 1, 1996, and elected to
account for these plans under the provisions of APB No. 25 and
will provide the required disclosures in future periods.
In June 1996, the FASB issued SFAS No. 125, Accounting for
Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. SFAS No. 125 provides
accounting and reporting standards for transfers and servicing
of financial assets and extinguishments of liabilities based
on consistent application of a financial-components approach
that focuses on control. Under that approach, after a
transfer of financial assets, an entity recognizes the
financial and servicing assets it controls and the liabilities
it has incurred, derecognizes financial assets when control
has been surrendered, and derecognizes liabilities when
extinguished. This statement is effective for transfers and
servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996, and is to be
applied prospectively. Earlier or retroactive application is
not permitted. The Company will adopt the provisions of the
Standard on January 1, 1997. Based on the Company's current
operating activities, management does not believe that the
adoption of this statement will have a material impact on the
Company's financial condition or results of operations.
Earnings Per Share
Earnings per share for the period from March 25, 1996, the
date of Conversion, to September 30, 1996, has been computed
based on the earnings during that period and on the weighted
average number of shares of common stock outstanding during
that period. Common stock outstanding is comprised of issued
shares less unallocated Employee Stock Ownership Plan ("ESOP")
shares. The weighted average number of shares used for the
period from March 25, 1996 through September 30, 1996, was
4,265,638. If earnings per share had been computed on a
retroactive basis for the year ended September 30, 1996,
recognizing earnings for the entire year, earnings per share
would have been $.50 per share as compared to the $.27 per
share reported in the accompanying consolidated statements of
income.
Financial Statement Reclassification
The financial statements for prior years have been
reclassified in order to conform with the 1996 financial
statement presentation. The reclassification did not change
total assets or net income in the prior year.
2. SECURITIES AVAILABLE FOR SALE
The amortized cost, gross unrealized gains and losses, and
estimated fair value of securities available for sale at
September 30, 1996 and 1995 are summarized as follows:
1996
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
U.S. government
and federal agencies
bonds and notes $14,989,610 $ 1,620 $ (121,030) $14,870,200
State and local bonds
and notes 1,121,920 0 (158,380) 963,540
16,111,530 1,620 (279,410) 15,833,740
Mortgage-backed
and related securities:
GNMA certificates 1,015,328 27,161 0 1,042,489
FHLMC certificates 14,118,927 99,323 (179,651) 14,038,599
FNMA certificates 8,759,029 2,789 (156,029) 8,605,789
Collateralized mortgage
obligations 23,196,504 54 (665,451) 22,531,107
Total mortgage-backed
and related securities 47,089,788 129,327 (1,001,131) 46,217,984
Equity securities:
FNMA preferred 1,010,000 0 (10,000) 1,000,000
FHLMC preferre 500,000 7,400 0 507,400
FHLMC common 457,926 4,038,678 0 4,496,604
FNMA common 734,975 2,159,257 0 2,894,232
FHLB common 1,244,500 0 0 1,244,500
U.S. League common 55,880 45,496 0 101,376
Total Equity securities 4,003,281 6,250,831 (10,000) 10,244,112
Mutual funds: 2,828,377 0 (12,429) 2,815,948
Total $70,032,976 $6,381,778 $(1,302,970) $75,111,784
1995
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
U.S. government and
federal agencies
bonds and notes $ 5,999,860 $ 4,910 $(175,695) $ 5,829,075
Mortgage-backed and
related securities:
GNMA certificates 1,021,720 32,770 0 1,054,490
FHLMC certificates 2,305,671 4,832 (37,522) 2,272,981
FNMA certificates 3,054,178 2,364 (44,965) 3,011,577
Collateralized mortgage
obligations 3,181,963 5,822 (14,964) 3,172,821
Total mortgage-backed
and related securities 9,563,532 45,788 (97,451) 9,511,869
Equity securities:
FHLMC preferred 500,000 18,000 0 518,000
FHLMC common 457,926 2,581,236 0 3,039,162
FNMA common 734,975 1,407,275 0 2,142,250
FHLB common 1,172,100 0 0 1,172,100
U.S. League common 55,880 29,920 0 85,800
Total equity securities 2,920,881 4,036,431 0 6,957,312
Mutual Funds 2,818,690 18,850 (11,212) 2,826,328
Total $21,302,963 $4,105,979 $(284,358) $25,124,584
The amortized cost and fair value of debt securities
available for sale by contractual maturity are shown below.
Expected maturities may differ from contractual maturities
because issuers may have the right to call or prepay
obligations with or without call or prepayment penalties.
September 30, 1996
Amortized Estimated
Cost FairValue
Due in one year or less $ 2,871,274 $2,864,890
Due from one to five years 12,722,032 12,513,051
Due from five to ten years 18,117,415 17,904,412
Due after ten years 29,490,597 28,769,371
63,201,318 62,051,724
Equity securities 4,003,281 10,244,112
Mutual funds 2,828,377 2,815,948
Total $70,032,976 $75,111,784
On December 1, 1995, the Company reassessed the
appropriateness of the classification of securities held at
that time and determined that certain securities previously
classified as held to maturity should be reclassified as
available for sale in accordance with the one time
reassessment prescribed by the FASB Special Report "A Guide
to Implementation of Statement 115 on Accounting for Certain
Investments in Debt and Equity Securities." Accordingly, on
December 1, 1995, the Company transferred securities having
an estimated market value of $27,758,607 and unrealized
gains and losses of $296,193 an $341,486, respectively, from
held to maturity to available for sale.
3. SECURITIES HELD TO MATURITY
The amortized cost, gross unrealized gains and losses, and
estimated fair values of securities designated as held to
maturity at September 30, 1996 and 1995 are summarized as
follows:
1996
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Gains Fair Value
Collateralized mortgage
obligations $4,755,702 $0 $(130,397) $4,625,305
Total $4,755,702 $0 $(130,397) $4,625,305
1995
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
U.S. Government and
federal agencies $10,445,513 $ 50,667 $ (60,560) $10,435,620
State government 387,984 50,900 0 438,884
Corporate 1,443,904 0 (60,279) 1,383,625
Mortgage-backed and
related securities: 176,475 13,127 0 189,602
GNMA certificates 3,581,227 142,676 0 3,723,903
FHLMC certificates 611,236 0 (4,694) 606,542
FNMA certificates 17,190,429 0 (467,243) 16,723,186
Collateralized
mortgage $33,836,768 $257,370 $(592,776) $33,501,362
Total
The carrying value and fair value of debt securities held to
maturity by contractual maturity are shown below. Expected
maturities may differ from contractual maturities because
issuers may have the right to call or prepay obligations
with or without call or prepayment penalties.
September 30, 1996
Carrying Estimated
Value Fair
Value
Due from one to five years $1,002,977 $ 972,450
Due from five to ten years 1,009,033 1,003,180
Due after ten years 2,743,692 2,649,675
$4,755,702 $4,625,305
Collateralized mortgage obligations designated as held to
maturity at September 30, 1996 bear interest at fixed and
adjustable rates ranging from 5.5% to 7.0%. The
collateralized mortgage obligations contractually mature at
various dates ranging from April 2001 to July 2023. Gross
unrealized gains in this portfolio totaled $0, and gross
unrealized losses totaled $130,397, at September 30, 1996.
Gross unrealized gains in the prior year's portfolio totaled
$181,432, and gross unrealized losses totaled $497,566 at
September 30, 1995.
4. LOANS RECEIVABLE, NET
Loans receivable at September 30, 1996 and 1995 are summarized
as follows:
1996 1995
Mortgage loans:
Principal balances:
Secured by 1-4 family residences $102,020,850 $86,716,040
Secured by multifamily and
non-residential properties 7,165,559 5,946,186
Construction loans 3,336,971 3,310,293
112,523,380 95,972,519
Less:
Undisbursed portion of mortgage
loans 1,355,841 1,278,520
Unearned discounts and net deferred
loan origination fees 428,466 343,054
Total mortgage loans 110,739,073 94,350,945
Commercial loans: 3,253,228 1,536,412
Consumer loans:
Principal balances:
Loans secured by automobiles 1,318,211 1,072,415
Loans secured by savings accounts 1,369,201 1,051,703
Other 1,523,172 528,548
Total loans 118,202,885 98,540,023
Less allowance for loan losses 572,000 552,000
Loans receivable, net $117,630,885 $97,988,023
As a savings bank, the Bank has a credit concentration in 1-4
family residential real estate mortgage loans. Substantially
all of the Bank's 1-4 family residential mortgage loan
customers are located in its trade area of Lee, Itawamba,
Prentiss, and Pontotoc Counties, Mississippi, which have a
local unemployment rate at or slightly below the average for
the state. Although the Bank has generally conservative
underwriting standards, including a collateral policy calling
for low loan to collateral values, the ability of its
borrowers to meet their residential mortgage obligations is
dependent upon local economic conditions.
In the normal course of business, loans are made to officers,
directors, and employees of the Company and subsidiary. These
loans are made on substantially the same terms, including
interest rates and collateral, as those prevailing for
comparable transactions with others. Such loans do not
involve more than the normal risk of collectible, nor do they
present other unfavorable features. As of September 30, 1996
and 1995, $1,666,839 and $1,101,281, respectively, of these
loans were outstanding. During fiscal year 1996, $833,618 of
new loans were made, repayments totaled $268,060.
Activity in the allowance for loan losses is summarized as
follows:
1996 1995 1994
Balance at beginning of year $552,000 $522,000 $500,000
Provision charged to income 20,000 30,000 25,000
Charge-offs 0 0 (12,000)
Recoveries 0 0 9,000
Balance at end of year $572,000 $552,000 $522,000
The Bank had loans on nonaccrual status at September 30, 1996
and 1995 in the amounts of approximately $717,000 and
$722,000, respectively. Interest income forgone on nonaccrual
loans was approximately $38,000 and $49,000 for fiscal years
1996 and 1995, respectively.
5. LOAN SERVICING
In 1984, the Bank sold first mortgage single-family
residential loans to the Federal National Mortgage Association
("FNMA") with full recourse which are not included in the
accompanying statements of financial condition. The total
principal balances outstanding under these mortgages were
$2,212,865, $2,932,955, and $4,049,718 at September 30, 1996,
1995, and 1994, respectively. Custodial escrow balances
maintained in connection with the foregoing loan servicing
were $45,805, $106,938, and $51,717, at September 30, 1996,
1995, and 1994, respectively. In the event of default, the
Bank must pay the principal and interest under default to
FNMA. The Bank would bear the burden of foreclosure losses in
the event of default. Because of the Bank's credit policies,
foreclosure losses in the event of default have not been
significant and losses under this recourse obligation are not
expected to be significant. At September 30, 1996, none of
these loans were past due 90 days or more. Accordingly, no
provision has been made in the financial statements for any
future losses that may result from this recourse arrangement.
6. ACCRUED INTEREST AND DIVIDENDS RECEIVABLE
Accrued interest and dividends receivable at September 30,
1996 and 1995 are as follows:
1996 1995
Securities available for sale $ 641,277 $ 220,175
Securities held to maturity 2,276 348,608
Loans receivable 683,557 581,227
Other 16,837 9,155
Total $1,343,947 $1,159,165
7. PREMISES AND EQUIPMENT, NET
Premises and equipment at September 30, 1996 and 1995 are
summarized as follows:
1996 1995
Land $ 137,068 $ 137,068
Building and improvements 579,456 579,455
Furniture, fixtures, and equipment 377,146 370,796
Total 1,093,670 1,087,319
Less accumulated depreciation 486,403 422,571
Premises and equipment, net $ 607,267 $ 664,748
8. DEPOSITS
Deposits at September 30, 1996 and 1995, the related ranges of
interest rates payable for deposits at September 30, 1996, and
the weighted average rates paid during 1996 are summarized as
follows:
Weighted
Average
Rate 1996 1995
1996 Amount Percent Amount Percent
NOW accounts,
2.5% to 5.00% 3.14% $ 12,519,798 9.50% $9,807,956 7.29%
Savings accounts,
2.75% 2.75% 6,873,038 5.22 8,184,404 6.08
2.99 19,392,836 14.72 17,992,360 13.37
Certificates
of deposit:
3% to 3.99% 0 0.00 368,716 0.27
4% to 4.99% 20,952,130 15.90 23,830,971 17.71
5% to 5.99% 67,348,478 51.12 48,748,368 36.23
6% to 6.99% 23,945,222 18.18 43,511,762 32.34
7% to 7.99% 101,767 0.08 102,327 0.08
5.41 112,347,597 85.28 116,562,144 86.63
Total 5.04% $131,740,433 100.00% $134,554,504 100.00%
The aggregate amounts of jumbo certificates of deposit with a
minimum balance of $100,000 were approximately $33,504,337 and
$35,379,817 at September 30, 1996 and 1995, respectively.
Deposits in excess of $100,000 are not federally insured.
Scheduled maturities of certificates of deposit at
September 30, 1996 are as follows:
Year ending September 30:
1997 $ 88,355,406
1998 13,457,046
1999 7,817,520
2000 2,713,474
2001 4,151
Total $112,347,597
Interest expense on deposits for the years ended September 30,
1996, 1995, and 1994 is summarized as follows:
1996 1995 1994
Savings accounts $ 260,564 $ 246,963 $ 422,197
NOW accounts 360,598 302,300 436,873
Certificates of deposit 6,308,962 5,570,083 5,579,061
Total $6,930,124 $6,119,346 $6,438,131
During fiscal year 1995, the Bank paid a 1% interest bonus on
all active deposits as of August 5, 1994 that remained active
until September 15, 1994. The fiscal year 1994 interest
expense on deposits amount includes $1,242,274 representing
this one-time special interest payment.
9. COMPENSATION AND EMPLOYEE BENEFITS
Employee Stock Ownership Plan
In connection with the Conversion, the Bank established an
ESOP for eligible employees. The ESOP purchased 363,200
shares of the Company's common stock with the proceeds of a
$3,632,000 note payable from the Bank to the Company and
secured by the Common Stock owned by the ESOP. Interest and
principal under the note are due in quarterly installments
through June 2013; interest is payable quarterly based on the
average daily outstanding balance of principal at the rate of
8.25% per annum. Impact of this financing is eliminated in
the consolidated financial statement presentation.
Expense related to the ESOP for fiscal 1996 was approximately
$167,890. Unearned compensation related to the ESOP was
approximately $3,464,000 at September 30, 1996, and is shown
as a reduction of stockholders' equity in the accompanying
consolidated statements of financial condition. Unearned
compensation is amortized into compensation expense based on
employee services rendered in relation to shares which are
committed to be released.
Defined Benefit Pension Plan
The Bank has a qualified, noncontributory defined benefit
pension plan covering substantially all its employees.
Benefits are based on each employee's years of service up to a
maximum of 40 years and the average of that employee's
compensation for the highest five consecutive calendar years
out of the last ten years prior to retirement. An employee
becomes fully vested upon completion of five years of
qualifying service. The Bank's funding policy is to make
annual contributions equal to or greater than the required
minimum under ERISA. The funds are primarily invested in
short-term certificates of deposit with the Bank.
The following sets forth the plan's funded status and amounts
recognized in the Bank's statement of financial condition at
September 30, 1996 and 1995:
1996 1995
Actuarial present value of benefit obligations:
Accumulated benefit obligation:
Vested $1,900,209 $1,782,374
Nonvested 49,085 123,059
Total 1,949,294 1,905,433
Additional benefit based on estimated future
salary levels 472,917 410,120
Projected benefit obligation for service
rendered to date 2,422,211 2,315,553
Plan assets at fair market value 2,018,315 1,879,369
Unfunded projected benefit obligation (403,896) (436,184)
Unrecognized net (gain) loss from past
experience different from that assumed
and effects of changes in assumptions 442,654 536,968
Unrecognized net transition obligation
(asset from adoption of FASB SFAS No. 87)
being amortized over 20 years (118,279) (127,377)
(Prepaid) unfunded pension cost liability
(included in other assets or other liabilities) $ 79,521 $ 26,593
The components of net periodic pension expense for the years ended
September 30, 1996, 1995, and 1994 are as follows:
1996 1995 1994
Service cost--benefits earned during
the period $ 57,591 $ 64,357 $ 62,588
Interest cost on the projected benefit
obligation 147,926 139,246 127,974
Actual return on plan assets (120,002) (71,001) (73,854)
Net asset gain (loss) during the period
deferred for later recognition 13,507 14,485 17,489
Amortization of unrecognized net obligation (9,098) (9,099) (9,099)
Net periodic pension cost $ 89,924 $137,988 $125,098
Assumptions used to develop the net
periodic pension cost were:
Weighted average discount rate 6.50% 6.50% 6.50%
Weighted average rate of compensation
increase 5.00 5.00 5.00
Weighted average expected long-term
rate of return on plan assets 4.00 4.00 4.00
Directors' Retirement Plan
During fiscal 1993, the Bank established the Directors'
Retirement Plan ("DRP") whereby directors or their
beneficiaries will be provided specific amounts of
quarterly retirement benefits for a period of ten years
following retirement. Directors are eligible under the
plan upon the completion of ten years of service. The
related compensation expense for the DRP was $52,791,
$42,177, and $49,602, for fiscal years 1996, 1995, and
1994, respectively. The related accrued compensation is
included in "accrued expenses and other liabilities" in the
accompanying statements of financial condition.
During fiscal 1994, the Company adopted the provisions of
SFAS No. 106, Accounting for Postretirement Benefits Other
Than Pensions. The unfunded DRP meets the definition of
such benefits as defined in SFAS No. 106. For fiscal 1996
and 1995, the projected benefit obligations were
approximately $483,000 and $403,000, the accumulated
benefit obligations, which were accrued for and included in
"accrued expenses and other liabilities," were
approximately $309,000 and $274,000, and the service costs
were approximately $53,000 and $42,000, respectively. The
weighted average discount rate used was 6.5% for 1996 and
1995.
10. INCOME TAXES
The provisions for income taxes for the years ended
September 30, 1996, 1995, and 1994 were as follows:
1996 1995 1994
Current:
Federal $1,324,389 $ 984,313 $ 771,429
State 140,962 151,387 177,399
1,465,351 1,135,700 948,828
Deferred (281,057) 8,634 63,600
Total $1,184,294 $1,144,334 $1,012,428
The differences between the provisions for income taxes and
the amounts computed by applying the statutory federal
income tax rate of 34% to income before income taxes at
September 30, 1996, 1995, and 1994 were as follows:
1996 1995 1994
Expected income tax expense
at federal tax rate $1,133,068 $1,080,874 $836,460
Increase (decrease) resulting from:
State income tax, net 75,840 99,580 147,000
Dividend received deduction (47,997) (35,425) (36,074)
Tax-exempt interest income (5,798) (8,500) (8,500)
Other 29,181 7,805 73,542
$1,184,294 $1,144,334 $1,012,428
Effective income tax rate 35% 36% 41%
Temporary differences between the financial statement carrying
amounts and tax bases of assets and liabilities that give rise
to significant portions of the net deferred tax liability as of
September 30, 1996 and 1995 relate to the following:
1996 1995
SAIF assessment $ 331,911 $ 0
Book allowance for loan loss 217,360 209,760
Retirement plan 118,640 104,128
Accrued bonuses 42,066 32,300
Deferred loan fees and
costs, net 4,848 104,269
Other 25,775 9,467
Deferred tax asset 740,600 459,924
Unrealized gain on securities
available for sale (2,040,330) (1,425,465)
Tax bad debt reserve in
excess of base year (389,734) (363,255)
FHLB dividends (101,266) (73,682)
Accretion of bond discount (20,302) (84,556)
Other (82,005) (72,195)
Deferred tax liability (2,633,637) (2,019,153)
Net deferred tax liability $ (1,893,037) $(1,559,229)
Thrift institutions, in determining taxable income, have
historically been allowed special bad debt deductions based
on specified experience formulae or on a percentage of
taxable income before such deductions. The bad debt
deduction based on the latter has been gradually reduced to
8%. On August 2, 1996, Congress passed the Small Business
Job Protection Act that, will among other things, repeal
the tax bad debt reserve method for thrifts effective for
taxable years beginning after December 31, 1995. As a
result, thrifts must recapture into taxable income the
amount of their post-1987 tax bad debt reserves over a
six-year period beginning after 1995. This recapture can
be deferred for up to two years if the thrift satisfies a
residential loan portfolio test. The Association is
expected to recapture approximately $1,025,000, $390,000
tax effected, of its tax bad debt reserves into taxable
income over six years as a result of this new law. The
recapture will not have any effect on the Bank's net income
because the related tax expense has already been accrued.
Because of such repeal, thrifts such as the Bank may only
use the same tax bad debt reserve that is allowed for
commercial banks. Accordingly, a thrift with assets of
$500 million or less may only add to its tax bad debt
reserves based upon its moving six-year average experience
of actual loan losses (i.e., the experience method).
The portion of a thrift's tax bad debt reserve that is not
recaptured under this new law is only subject to recapture
at a later date under certain circumstances. These include
stock repurchases, redemptions by the thrift or if the
thrift converts to a type of institution (such as a credit
union) that is not considered a commercial bank for tax
purposes. However, no further recapture would be required
if the thrift converted to a commercial bank charter or was
acquired by a commercial bank. The Bank does not
anticipate engaging in any transactions at this time that
would require the recapture of its pre-1988 tax bad debt
reserves of approximately $4,650,000.
11. FEDERAL HOME LOAN BANK ADVANCES
The Bank is required by its blanket floating lien agreement
with the Federal Home Loan Bank ("FHLB") to pledge its
portfolio of first mortgage collateral, demand deposit
accounts, capital stock, and certain other assets. As of
September 30, 1995, the Bank had $1,000,000 in FHLB
advances outstanding at a variable rate of 5.98%, which
were repaid in full during the year ended September 30,
1996.
12. REGULATORY MATTERS
Under regulations promulgated by the Bank's primary
regulator, the Office of Thrift Supervision ("OTS"), the
Bank must maintain capital levels to comply with the
following minimum capital requirements: (1) tangible
capital equal to 1.5% of adjusted total assets; (2)
leverage capital, or core capital, required to be
maintained at 3% of adjusted total assets (although most
institutions are required by regulators to maintain a core
capital ratio of an additional 100 to 200 basis points);
and (3) risk-based capital equal to 8% of its aggregate
assets and off-balance sheet financial instruments as
adjusted to reflect that relative credit risk.
The Bank is also subject to additional capital standards
established by the Federal Deposit Insurance Corporation
Improvement Act of 1991. These regulations established
capital standards in five categories ranging from
"critically undercapitalized" to "well capitalized", and
defined "well capitalized" as at least 5% for core
(leverage) capital, 6% for Tier 1 risk-based capital and at
least 10% for total risk-based capital. Institutions with
a core capital ratio less than 4%, a Tier 1 risk-based
capital ratio less than 4%, or a total risk-based capital
ratio less than 8% are considered "undercapitalized," and
subject to increasingly stringent prompt corrective action
measures. The Bank's capital ratios place it in the "well
capitalized" category at September 30, 1996 and 1995.
A reconciliation of the Bank's stockholders' equity to the
Bank's tangible, core, and risk-based capital available to
meet its regulatory capital requirements is as follows:
Minimum for
Capital Adequacy
Actual Purposes
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 I (core) capital, and ratio
to adjusted total assets 22.8% $ 41,834 3.0% $5,496
Tier I capital, and ratio to
risk-weighted assets 50.1% $ 41,834 4.0% $3,339
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
Total assets $186,538
Adjusted total assets $183,209
Risk-weighted assets $ 83,487
To be Well
Capitalized for
Action Provisions
Ratio Amount
Stockholders' euqity and ratio to
total assets
Unrealized gain on available for
sale securities
Tangible capital, and ratio to
adjusted total assets
Tier 1 (core) capital, and ratio
to adjusted total assets 5.00% $9,160
Tier 1 capital, and ratio to
risk-weighted assets 6.00% $5,009
Tier 2 capital (general
allowance for loan losses)
Total risk-based capital, and
ratio to risk-weighted assets 10.00% $8,349
Total assets
Capital requirements continue to be under study by the OTS.
Management continues to monitor these requirements and
contemplated changes and believes that the Bank will continue
to exceed its regulatory minimum requirements.
The OTS has adopted an amendment to its risk-based capital
requirements that generally requires savings institutions with
more than a "normal" level of interest-rate risk to maintain
additional total capital. An institution will be considered
to have a "normal" level of interest-rate risk exposure if the
decline in its NPV after an immediate 200 basis point increase
or decrease in market interest rates (whichever results in the
greater decline) is less than 2% of the current estimated
economic value of its assets. An institution with a greater
than normal interest rate risk will be required to deduct from
total capital, for purposes of calculating its risk-based
capital requirement, an amount (the "interest-rate risk
component") equal to one-half the difference between the
institution's measured interest-rate risk and normal level of
interest-rate risk as determined by the OTS, multiplied by the
economic value of its total assets. The Association has been
notified by the OTS that it will be required to incorporate
the interest-rate risk component to the risk-based capital
requirement. However, the interest-rate risk component of
risk-based capital requirement has been waived until the OTS
finalizes the process under which institutions
may appeal such
capital requirements. Based on the Bank's capital level, management
does not expect that implementation of this requirement will cause
the Bank to fall below its capital requirements.
13. COMMITMENTS AND CONTINGENCIES
Loan Commitments
At September 30, 1996, the Bank had outstanding commitments to
originate loans in the amount of $2,082,850. Of these
outstanding amounts, commitments of $760,000 were at fixed
rates ranging between 7.50% and 9.25%; terms for these
outstanding commitments are up to 180 days. Commitments to
extend credit include exposure to some credit loss in the
event of nonperformance of the customer. The Bank's credit
policies and procedures for credit commitments are the same as
those for extensions of credit that are recorded on the
statement of financial condition.
Litigation
The Company is a defendant in certain claims and legal actions
arising in the ordinary course of business. In the opinion of
management, after consultation with legal counsel, the
ultimate disposition of these matters is not expected to have
a material adverse effect on the consolidated financial
position of the Company.
14. INTEREST RATE SENSITIVITY
A portion of the Bank's interest-earning assets are long-term
fixed rate mortgage loans and mortgage-backed and related
securities (approximately 47%), while its principal source of
funds is savings deposits with maturities of three years or
less (approximately 90%). Because of the short-term nature of
the savings deposits, their cost generally reflects returns
currently available in the market. Accordingly, the savings
deposits have a high degree of interest rate sensitivity,
while the mortgage loan portfolio, to the extent of fixed rate
loans, is relatively fixed and has much less sensitivity to
changes in current market rates. Although these conditions
are somewhat mitigated by the Bank's risk management
strategies of selling certain long-term fixed rate loans and
plans to increase amounts of short-term consumer loans
originated, changes in market interest rates tend to directly
affect the level of net interest income.
At June 30, 1996, based on the most recent available
information provided by the Office of Thrift Supervision
("OTS"), it was estimated, on an unaudited basis, that the
Bank's net portfolio value ("NPV") (the net present value of
the Bank's cash flows from assets, liabilities, and
off-balance sheet items) would decrease 6%, 12%, 21%, and 29%
and increase 5%, 10%, 12%, and 15% in the event of 1%, 2%, 3%,
and 4% increases and decreases in market interest rates,
respectively. These calculations indicate that the Bank's NPV
could be adversely affected by increases in interest rates but
could be favorably affected by decreases in interest rates.
Computations of prospective effects of hypothetical interest
rate changes are based on numerous assumptions, including
relative levels of market interest rates, prepayments, and
deposit run-offs and should not be relied upon as indicative
of actual results. Certain shortcomings are inherent in such
computations. In order to mitigate its interest rate risk,
the Bank maintains substantial capital levels that management
believes are sufficient to sustain unfavorable movements in
market interest rates.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures About Fair Value of Financial
Instruments, requires disclosure of fair value information
about financial instruments, whether or not recognized in the
statement of condition, for which it is practicable to
estimate that value. In cases where quoted market prices are
not available, fair values are based on estimates using
present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of
the instrument. The use of different market assumptions
and/or estimation methodologies may have a material effect on
the estimated fair value amounts. Also, the fair value
estimates presented herein are based on pertinent information
available to Management as of September 30, 1996. Such
amounts have not been comprehensively revalued for purposes of
these financial statements since those dates and, therefore,
current estimates of fair value may differ significantly from
the amounts presented herein.
The following methods and assumptions were used by the Company
in estimating its fair values disclosures for financial
instruments:
Investment Securities
Fair values for investment securities are primarily based on
quoted market prices. If a quoted market price is not
available, fair value is estimated using market prices for
similar securities.
Loans
For equity lines and other loans with short-term or variable
rate characteristics, the carrying value reduced by an
estimate for credit losses inherent in the portfolio is a
reasonable estimate of fair value. The fair value of all
other loans is estimated by discounting their future cash
flows using interest rates currently being offered for loans
with similar terms, reduced by an estimate of credit losses
inherent in the portfolio. The discount rates used are
commensurate with the interest rate and prepayment risks
involved for the various types of loans.
Deposits
The fair value disclosed for demand deposits (e.g., interest
and non-interest bearing demand, savings and money market
savings), are, as required by SFAS No. 107, equal to the
amounts payable on demand at the reporting date (i.e., their
carrying amounts). Fair values for certificates of deposits
are estimated using a discounted cash flow calculation that
applies interest rates currently being offered on certificates
to a schedule of aggregated monthly maturities.
Commitments to Extend Credit
The value of these unrecognized financial instruments is
estimated based on the fee income associated with the
commitments which, in the absence of credit exposure, is
considered to approximate their settlement value. As no
significant credit exposure exists and because such fee income
is not material to the Company's financial statements at
September 30, 1996, the fair value of these commitments is not
presented.
Many of the Company's assets and liabilities are short-term
financial instruments whose carrying amounts reported in the
statement of condition approximate fair value. These items
include cash and due from banks and interest-bearing bank
balances. The estimated fair values of the Company's
remaining on-balance sheet financial instruments as of
September 30, 1996, are summarized below:
1996
Carrying Estimated
Value Fair Value
(In thousands)
Financial Assets:
Securities available $ 75,112 $ 75,112
Securities held to maturity 4,756 4,625
Loans, net 117,631 116,996
Financial Liabilities:
Deposits 131,740 131,648
SFAS No. 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements.
The disclosures also do not include certain intangible assets,
such as customer relationships, deposit base intangibles and
goodwill. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the
Company.
16. FDIC ASSESSMENT
The deposits of the Bank are currently insured by the Savings
Association Insurance Fund ("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 ratio of 1.25% of insured
deposits. The BIF has achieved the required reserve rate,
and, as discussed below, during the past year 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.
On November 4, 1995, the FDIC approved a final rule regarding
deposit insurance premiums. Beginning January 1, 1996, the
rule reduced deposit insurance premiums for BIF member
institutions to zero basis points (subject to a $2,000
minimum) for institutions in the lowest risk category, while
holding deposit insurance premiums for SAIF members at their
current levels (23 basis points for institutions in the lowest
risk category).
Banking legislation was enacted September 30, 1996 to
eliminate the premium differential between SAIF-insured
institutions and BIF-insured institutions. The FDIC Board of
Directors met October 8, 1996 and approved a rule that, except
for the possible impact of certain exemptions for de novo and
"weak" institutions, established the special assessment
necessary to recapitalize the SAIF at 65.7 basis points of
SAIF assessable deposits held by affected institutions as of
March 31, 1995. The legislation provides that all SAIF member
institutions pay a special one-time assessment to recapitalize
the SAIF, which in the aggregate is sufficient to bring the
reserve ratio in the SAIF to 1.25% of insured deposits. It is
anticipated that after recapitalization of the SAIF, premiums paid
by SAIF-insured institutions will be reduced. The legislation also
provides for the merger of the BIF and the SAIF, with such merger
being conditioned upon the prior elimination of the thrift charter.
Based upon its level of SAIF deposits as of March 31, 1995,
the Bank will pay approximately $870,000. The assessment was
accrued in the quarter ended September 30, 1996.
17. STOCK CONVERSION
On September 15, 1995, the Conversion of the Bank from a
federally-chartered mutual institution to a
federally-chartered stock savings bank through amendment of
its charter and issuance of common stock to the Company was
completed. Related thereto, the Company sold 4,628,750 shares
of common stock, par value $.01 per share, at an initial price
of $10 per share in subscription and community offerings.
Costs associated with the Conversion were approximately
$1,285,000, including underwriting fees. These conversion
costs were deducted from the gross proceeds of the sale of the
common stock.
In connection with the Offering, the Association established a
liquidation account in an amount equal to its regulatory
capital as of the latest practicable date prior to
consummation of the Offering.
The Company's ability to pay dividends will be largely
dependent upon dividends to the Company from the Association.
Pursuant to OTS regulations, the Association will not be
permitted to pay dividends on its capital stock or repurchase
shares of its stock if its stockholders' equity would be
reduced below the amount required for the liquidation account
or if stockholders' equity would be reduced below the amount
required by the OTS.
18. Parent company financial statements
Separate condensed financial statements of Community Federal
Bancorp, Inc. (the "Parent Company") as of and for the year
ended September 30, 1996 are presented below:
Statement of Financial Condition
September 30, 1996
(Dollar amounts in thousands)
ASSETS:
Cash and cash equivalents $ 1,633
Securities available for sale 17,091
Investment in subsidiary 45,163
ESOP loan receivable 3,498
Other assets 388
Total assets $67,773
LIABILITIES:
Other liabilities $ 635
STOCKHOLDERS' EQUITY:
Preferred stock 0
Common stock 46
Additional paid-in capital 45,006
Retained earnings 22,512
Unearned compensation (3,464)
Unrealized loss on securities
available for sale, net 3,038
Total stockholders' equity 67,138
Total liabilities and stockholders' equity $67,773
Statement of Income
For the Year Ended September 30, 1996
(Dollar amounts in thousands)
INTEREST INCOME:
Interest and dividends on securities
available for sale $ 561
Interest income from subsidiary 207
Total income 768
OPERATING EXPENSE 24
INCOME BEFORE INCOME TAXES AND EQUITY
IN UNDISTRIBUTED CURRENT YEAR
SUBSIDIARY EARNINGS 744
INCOME TAXES 280
INCOME BEFORE EQUITY IN UNDISTRIBUTED
CURRENT YEAR SUBSIDIARY EARNINGS 464
EQUITY IN UNDISTRIBUTED CURRENT YEAR
SUBSIDIARY EARNINGS 1,684
Net income $2,148
Statement of Cash Flows
For the Year Ended September 30, 1996
(Dollar amounts in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,148
Equity in undistributed current year earnings
of subsidiary (1,684)
464
Adjustments to reconcile net income to net
cash provided by operating activities:
Increase in other assets (388)
Increase in other liabilities 635
Net cash provided by operating activities 711
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities available for sale (18,089)
Principal collections on mortgage-backed
and related securities 708
Net cash used by investing activities (17,381)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 41,368
Purchase of Bank's common stock (22,532)
Payments received on ESOP loan 134
Dividends paid (667)
Net cash provided by financing activities 18,303
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,633
CASH AND CASH EQUIVALENTS, beginning of year 0
CASH AND CASH EQUIVALENTS, end of year $1,633
Earnings are presented on a retroactive basis, recognizing
earnings of the subsidiary for the year ended September 30,
1996. This presentation is based on the accounting for the
Conversion at historical cost, in a manner similar to that
utilized in a pooling of interests.
Directors
Medford M. Leake Robert R. Black, Sr.
Charirman of the Board Retired - Periodontist
President - Steel City Tupelo, MS
Lumber Co.
Birmingham, AL
Jim Ingram Michael R. Thomas
President and Chief Executive President -Washington
Officer Furniture Mfg., Inc.
Community Federal Bancorp, Inc./ Houlka, MS
Community Federal Savings Bank
Tupelo, MS
Charles V. Imbler, Sr. Robert W. Reed III
President and Chief Executive Account Executive-
Officer Reed Mfg. Co
Truck Center, Inc. Tupelo, MS
Tupelo, MS
J. Leighton Pettis Officers
Ophthalmologist
Tupelo, MS Gill Simmons, Vice President
Jack Johnson, Vice President
L. F. Sams, Jr. Mark Burleson, Vice President
Partner, Law Firm Lynda Riley, Treasurer
Mitchell, McNutt, Threadgill, Judy Ballard, Secretary
Smith & Sams Sherry McCarty, Controller
Tupelo, MS
Corporate Headquarters Independent Public Accountants
333 Court Street Arthur Andersen, LLP
Tupelo, MS 38801 Birmingham, AL
601-842-3981
Special Counsel
Transfer Agent Elias, Matz, Tiernan and
Registrar and Transfer Co. Herrick, LLP
10 Commerce Drive Washington, DC
Cranford, NJ 07016
(800)368-5948 Special Counsel
Mitchell, McNutt, Threadgill, Smith
and Sams, PA
10-K Information
Listing of Common Stock This report is availabe to
Traded Over-the-Counter/ stockholders upon request to:
NASDAQ National Markert Stystem/ The Controller, P.O. Box F,
Symbol: CFTP Tupelo, MS. 38801
(601)840-0302
Annual Meeting
The 1996 Annual Meeting of the Stockholders of
Community Federal Bancorp, Inc. will be held at 5:00
p. m. on March 27, 1997, in the Lobby of Community
Federal Savings Bank, 333 Court Street, Tupelo,
Mississippi