UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 1997 Commission File Number: 0-27930 Community Federal Bancorp, Inc. (Exact name of registrant as specified in its charter) Delaware 64-086536 (State or other jurisdiction (I.R.S. Employer Of incorporation or organization) Identification No.) P.O. Box F 333 Court Street Tupelo, Mississipi 38802 (Address of principal (Zip Code) Executive offices) Registrant's telephone number, including area code: (601) 842-3981 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at March 31, 1997 Common Stock, 4,628,750 shares $.01 par value COMMUNITY FEDERAL BANCORP, INC. PART I. FINANCIAL INFORMATION Page ITEM 1. FINANCIAL STATEMENTS: CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL 2 CONDITION AS OF MARCH 31, 1997 AND SEPTEMBER 30, 1996 CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR 3 THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996 AND THE SIX MONTHS ENDED MARCH 31, 1997 AND 1996 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 4 FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1996 THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FURNISHED HAVE NOT BEEN AUDITED BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS, BUT REFLECT, IN THE OPINION OF MANAGEMENT,ALL ADJUSTMENTS NECESSARY FOR A FAIR PRESENTATION OF FINANCIAL CONDITION AND THE RESULTS OF OPERATIONS FOR THE PERIODS PRESENTED ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 7 FINANCIAL CONDITION AND RESULTS OF OPERATIONS PART II. OTHER INFORMATION OTHER INFORMATION 10 SIGNATURES 12 Part I. Financial Information Item 1. Financial Statements COMMUNITY FEDERAL BANCORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION ASSETS March 31, September 30, 1997 1996 CASH AND CASH EQUIVALENTS $4,563,848 $4,205,679 SECURITIES AVAILABLE FOR SALE, at fair value 70,645,368 75,111,784 SECURITIES HELD TO MATURITY, fair values of $4,518,634 and $4,625,305, respectively 4,613,066 4,755,702 LOANS RECEIVABLE, net 123,243,090 117,630,885 PREMISES AND EQUIPMENT 1,603,739 607,267 OTHER ASSETS 1,380,010 1,705,625 Total assets $206,049,122 $204,016,942 LIABILITIES AND STOCKHOLDERS' EQUITY March 31, September 30, 1997 1996 DEPOSITS $131,941,156 $131,740,433 OTHER LIABILITIES 5,042,153 5,137,613 Total liabilities 136,983,309 136,878,046 STOCKHOLDERS' EQUITY: Preferred stock, no par, no shares issued, 2,000,000 authorized 0 0 Common stock, par $.01 per share, 4,628,750 issued and outstanding, 10,000,000 authorized 46,288 46,288 Additional paid-in capital 45,087,259 45,006,311 Retained earnings 23,640,006 22,511,930 Unrealized gain on securities available for sale, net 3,647,800 3,038,477 Unearned ESOP compensation (3,355,540) (3,464,110) Total stockholders' equity 69,065,813 67,138,896 Total liabilities and stockholders' equity $206,049,122 $204,016,942 The accompanying notes are an integral part of these statements COMMUNITY FEDERAL BANCORP, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME Three Months Six Months Ended March 31, Ended March 31, 1997 1996 1997 1996 INTEREST INCOME: Interest and fees on loans $2,417,154 $2,119,422 $4,780,756 $4,133,769 Interest and dividends 355,271 514,848 765,154 945,540 on securities Interest on mortgage-backed and related securities 833,976 488,021 1,660,179 1,660,180 Total interest income 3,606,401 3,122,291 7,206,088 6,739,489 INTEREST EXPENSE: Interest on deposits 1,627,248 1,837,306 3,293,192 3,621,032 Other interest expense 21,348 3,646 32,819 18,936 Total interest expense 1,648,596 1,840,952 3,326,011 3,639,968 PROVISION FOR LOAN LOSSES 5,000 5,000 10,000 15,000 Net interest income after provision for loan losses 1,952,805 1,276,339 3,870,077 3,084,521 NONINTEREST INCOME: Deposit fees 18,729 10,940 40,365 21,490 Loan servicing fees 63,299 24,066 103,752 43,587 Other income 17,916 30,363 21,838 72,321 Total noninterest income 99,944 65,369 165,956 137,398 NONINTEREST EXPENSE: Compensation and benefits 373,791 263,468 696,173 508,099 Occupancy and equipment 28,264 70,729 54,159 113,415 Other operating expense 231,070 164,112 453,503 311,020 Total noninterest expense 633,125 498,309 1,203,835 932,534 Income before income taxes 1,419,624 843,399 2,832,198 2,289,385 PROVISION FOR INCOME TAXES 531,686 316,200 1,059,790 616,200 NET INCOME $887,938 $527,199 $1,772,408 $1,673,185 EARNINGS PER SHARE $0.21 $0.11 $0.41 $0.36 SHARES OUTSTANDING LESS UNALLOCATED ESOP 4,282,339 4,628,750 4,282,339 4,628,750 The accompanying notes are an integral part of these statements COMMUNITY FEDERAL BANCORP, INC. STATEMENT OF CASH FLOWS MARCH 31, 1997 AND 1996 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $1,772,408 $995,784 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 34,218 40,693 Deferred loan fees 9,240 49,639 Accreation of discounts, net (18,664) (274,874) Amortization of Unearned Compensation 189,518 0 Provision for loan losses 10,000 15,000 Gain on sale of securities, net 2,617 (53,711) Changes in assets and liabilities: Decrease in prepaid taxes 0 44,212 Increase (Decrease) in other assets 222,678 (238,739) Increase in interest and dividends receivable 102,937 55,450 Decrease (Increase) in other liabilities (1,414,092) 86,340 Total adjustments (861,548) (275,990) Net cash provided by operating activities 910,860 719,794 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of Real Estate Owned 0 1,000 Proceeds from maturities of securities 1,505,051 5,658,184 Proceeds from sales of securities 2,990,156 1,454,596 Principal collections and maturities on mortgage-backed and related securities 3,788,667 201,909 Purchase of property and equipment (1,030,690) (13,679) Loan (originations) and principal repayments, net (5,631,445) (9,450,278) Purchase of securities (3,045,575) (4,076,791) Net cash used by investing activities (1,423,836) (6,225,059) CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in customer deposits, net 200,723 (3,880,797) Dividends paid (644,333) 0 (Decrease) increase in advances from borrowers for taxes and insurance (185,245) (193,932) Net change in FHLB advances 1,500,000 (1,000,000) Net proceeds from issuance of common stock 0 41,376,814 Net cash provided by financing activities 871,145 36,302,085 Net increase in cash and cash equivalents 358,169 30,796,820 CASH AND CASH EQUIVALENTS, beginning of year 4,205,679 2,895,100 CASH AND CASH EQUIVALENTS, end of period $4,563,848 $33,691,920 The accompanying notes are an integral part of these statements COMMUNITY FEDERAL BANCORP, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION Community Federal Bancorp, Inc. (The "Company") was incorporated in the State of Delaware on November 22, 1995, for the purpose of becoming a holding company to own all of the outstanding capital stock of Community Federal Savings Bank (the "Bank"), an existing Stock Bank which was 100% owned by Community Federal Mutual Holding Company (the "MHC"). Upon the conversion from a federally chartered mutual holding company form of organization to a federally chartered stock savings association (the "Conversion"), the MHC was dissolved. The accompanying unaudited condensed consolidated financial statements as of March 31, 1997, and for the three and six month periods then ended, include the accounts of the Company and the Bank. All significant intercompany transactions and accounts have been eliminated in consolidation. The condensed consolidated financial statements were prepared by the company without an audit, but in the opinion of management, reflect all adjustments necessary for the fair presentation of financial position and results of operations for the three and six month periods ended March 31, 1997 and 1996. Results of operations for the current interim period are not necessarily indicative of results expected for the fiscal year ended September 30, 1997. While certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange commission, management believes that the disclosures herein are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended September 30, 1996. The accounting policies followed by the Bank are set forth in the summary of significant accounting policies in the Bank's September 30, 1996 consolidated financial statements. 2. STOCK CONVERSION On March 14, 1996, the Conversion to a federally chartered stock savings bank through amendment of its charter, dissolution of the MHC, and issuance of common stock to the company was completed. Related thereto, the Company sold 4,628,750 shares of common stock, par value $.01 per share, at an initial price of $10 per share in subscription and community offerings. Costs associated with the Conversion were approximately $1,300,000 including underwriting fees. These conversion costs were deducted from the gross proceeds of the sale of the common stock. In connection with the Conversion, the Company has established an employee stock ownership plan (the "ESOP"). The ESOP purchased approximately 8%, or 363,200 shares, of the total shares of common stock sold. The company lent $3,632,000 to the ESOP for the purchase of the shares of common stock. Unearned compensation for the ESOP was charged to stockholders' equity and is reduced ratably in connection with principal payments under the terms of the Plan. The Management Recognition and Retention Plan Trust and the Stock Option Plan (the "Plans") were approved by shareholders and will be effective April 1, 1997. Under the Management Recognition and Retention Plan, employees and directors could be awarded an aggregate amount of shares of common stock equal to 4% of the shares issued in the Conversion (185,150 shares of common stock) and under the Stock Option Plan, employees and directors could be granted options to purchase an aggregate amount of shares of common stock equal to 10% of the shares issued in the Conversion at exercise prices equal to the market price of the common stock on the date of grant. 3. PRO FORMA EARNINGS PER SHARE Earnings per share for the three and six months ended March 31, 1996 has been computed based on the weighted average number of shares of common stock, less any unallocated ESOP shares, which were outstanding during the three and six month periods ended March 31, 1997. 4. ACCOUNTING PRONOUNCEMENT In June 1996, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (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 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 statements 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 adopted the provisions of the Standard on January 1, 1997. Based on the Company's current operating activities, the adoption of this statement did not have an impact on the Company's financial condition or results of operations. In February 1997, FASB issued SFAS No. 128, " Earnings per Share". This Statement establishes standards for computing and presenting earnings per share (ESP) and applies to entities with publicly held common stock or potential common stock. This Statement simplifies the standards for computing earnings per share previously found in APB Opinion No 15, Earnings per Share, and makes them comparable to international EPS standards, It replaces the presentation of primary EPS with a presentation of basic EPS and requires dual presentation of basic and diluted EPS on the face of the income statement for all entities with complex capital structures and requires a reconciliation denominator of the diluted EPS computation. This Statement is effective for financial statements issued for periods ending after December 15, 1997, including interim periods; earlier application is not permitted. This Statement requires restatement of all prior-period EPS data presented. The Company will adopt the Statement at fiscal year-end 1998. Basic and diluted earnings per share under SFAS No 128 would be identical to earning per share as presents in the financial statements. Part 1 Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS On March 25, 1996, Community Federal Bancorp, Inc. (The "Company") completed the sale of 4,628,750 shares of its common stock in an initial public offering at a price of $10.00 and simultaneously acquired the shares of common stock of Community Federal Savings Bank (the "Bank") in connection with the mutual to stock conversion (the "Conversion"). Costs associated with the conversion were approximately $1,300,000. Prior to March 25, 1996, the Company had not issued any stock, had no assets or liabilities, and had not engaged in any business activities other than of an organizational nature. Accordingly, the financial data for periods prior to March 24, 1996 included herein reflect the operations of the Bank only. Comparisons of Financial Conditions at March 31, 1997 and September 30, 1996 Total assets increased by $2.0 million, or 1.0%, from $204 million at September 30, 1996 to $206 million at March 31, 1997. The increase in total assets was primarily attributed to a $4.6 million decrease in investments, $5.6 million increase in loans receivable and a $996,000 increase in premises and equipment. Equity increased $1.9 million since September 30, 1996 as a result of a $600,000 increase in unrealized gain on Assets available for sale, declaration of dividends of $644,000, and $1.8 million in net income for the six month ended March 31, 1997. Comparison of Results of Operations for the Three Months Ended March 31, 1997 and 1996 The company reported net income for the three months ended March 31, 1997 of $874,000 as compared to $527,000 for the three months ended March 31, 1996. The increase in income for the three months ended March 31, 1997 was due mainly to an increase in net interest income. Net Interest Income Net interest income for the three months ended March 31, 1997 amounted to $2.0 million as compared to $1.3 million for the three months ended March 31, 1996. Total interest income increased $484,000 during the quarter ended March 31, 1997 as compared to the same three month period of the prior year. This increase resulted primarily from increased interest and fees on the higher average balance in earning assets discussed above. Total interest expense decreased 10.4% during the 2nd quarter 1997 compared to the same three month period of the previous year. This decrease in interest expense is attributed to the lower average balance in deposit accounts resulting from depositors being able to withdraw from their deposit account without penalty to fund their stock purchase at the initial public offering. Provision for Loan Losses A $5,000 provision for loan losses was made during the second quarter of 1997 to correspond with the volume in the mortgage and consumer loan portfolio, consistent with the $5,000 provision for loan losses during the comparable 1996 second quarter. This adjustment reflects management's estimates which took into account historical experience, the amount of nonperforming assets, and general economic condition. Total nonperforming assets at March 31, 1997 were $731,000, compared to $531,000 at March 31, 1996. The allowance for loan losses at March 31, 1997 was $580,000 compared to $567,000 at March 31, 1996. Noninterest Income Noninterest income increased $35,000 from $65,000 for the three months ended March 31, 1996 to $100,000 for the three months ended March 31, 1997. Noninterest Expense Noninterest expense increased $135,000 from $498,000 for the three months ended March 31, 1996 to $633,000 for the three months ended March 31, 1997. Chief reasons for the increase were the increase in compensation expense associated with the Employee Stock Ownership plan ("ESOP"). Provision for Income Tax Income tax expense for the three months ended March 31, 1997 increased $215,000 to $531,000 as compared to income tax expense of $316,000 for the three months ended March 31, 1996. This increase is the result of the increase in income before income taxes. Comparisons of Results of Operations for the Six Months Ended March 30, 1997 and 1996. The Company reported net income for the six month ended March 1997 of $1.8 million as compared to $996,000 for the six months ended March 31, 1996. The increase was due mainly to an increase in net interest income. Net Interest Income Net interest income for the six months ended March 31, 1997 amounted to $3.9 million as compared to $2.4 million for the six months ended March 31, 1996. The increase resulted from growth in volume of earning assets, funded by the proceeds of the initial public offering. A $300,000 decrease in interest expense contributed to the $1.1 million increase in net interest income. Provisions for Loan Losses A $10,000 provisions for loan losses was made during the six months ended March 31, 1997, consistent with the $15,000 provision made during the six months ended March 31, 1996. This adjustment reflects management's estimates which took into account historical experience, the amount of nonperforming assets, and general economic conditions. Noninterest Expense Noninterest expense increased by $271,000 from $933,000 for the six months ended March 31, 1996 to $1.2 million for the six months ended March 31, 1997. The increase was primarily due to an increase in compensation expense associated with ESOP. Provision for Income Tax Income tax expense for the six months ended March 31, 1997 increased by $444,000 to $1.1 million as compared to the income tax expense of $616,000 for the six months ended March 31, 1996. This increase was due to the overall increase in income before income taxes. Capital Resources The Bank's primary sources of funds are customer deposits, repayments of loan principal, and interest from loans and investments. While scheduled principal repayments on loans and mortgage-backed securities are relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. The Bank manages the pricing of its deposits to maintain a desired deposit balance. In addition, the Bank invests in short term interest-earning assets which provide liquidity to meet lending requirements. The Bank is required to maintain certain levels of regulatory capital. At March 31, 1997, the Bank was in compliance with all regulatory capital requirements. PART II. OTHER INFORMATION Item 1. Legal Proceedings From time to time, the Company and any subsidiaries may be a party to various legal proceedings incident to its or their business. At March 31, 1996, there were no legal proceedings to which the Company or any subsidiary was a party, or to which any of their property was subject, which were expected by management to result in a material loss. Item 2. Changes in Securities None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders At the annual meeting of shareholders held on March 27, 1997, in Tupelo, Mississippi, the shareholders elected directors, approved the 1997 Stock Option Plan, approved the 1997 Management Recognition Plan and Trust, and ratified the appointment of Arthur Andersen, LLP as Community Federal's independent auditors for 1997. The following is a tabulation of all votes timely cast in person or by proxy by shareholders of Community Federal for the annual meeting: To elect directors to three-year terms: Nominee For Withheld Robert R. Black 4,004,075 107,715 Jim Ingram 4,004,025 107,765 L. F. Sams 4,003,625 108,165 To approve the adoption of the 1997 Stock Option Plan: For 3,093,503 Against 159,013 Abstain 36,315 To approve the adoption of the 1997 Management Recognition Plan and Trust: For 3,138,159 Against 173,138 Abstain 38,120 To ratify the appointment of Arthur Andersen, LLP as Community Federal's independent auditors for 1997: For 4,060,190 Against 32,900 Abstain 18,700 Item 5. Other Information Not applicable Item 6. Exhibits and Reports on Form 8-K Not applicable SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. COMMUNITY FEDERAL BANCORP, INC. Date: May 14, 1997 (S) Jim Ingram Jim Ingram, President and Chief Executive Officer Date: May 14, 1997 (S) Sherry McCarty Sherry McCarty, Controller and Principal Financial Officer