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 December 31, 1998
Commission File Number: 0-27930
Community Federal Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Delaware 64-0869537
(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 December 31, 1998
Common Stock, 4,266,150 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 DECEMBER 31, 1998 AND
SEPTEMBER 30, 1998
CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR 3
THE THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 4
FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997
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 8
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
OTHER INFORMATION 10
SIGNATURES 11
Part I. Financial Information
Item 1. Financial Statements
COMMUNITY FEDERAL BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
ASSETS
December 31 September 30,
1998 1998
CASH AND CASH EQUIVALENTS $6,347,914 $4,070,714
SECURITIES AVAILABLE FOR SALE, at fair value 127,530,360 119,799,017
SECURITIES HELD TO MATURITY,
fair values of $2,434,000 and
$2,760,651 respectively 2,430,178 2,742,209
LOANS RECEIVABLE, net 144,517,281 141,414,264
PREMISES AND EQUIPMENT 2,908,994 2,944,000
OTHER ASSETS 4,524,903 4,350,238
Total assets $288,259,630 $275,320,442
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, September 30,
1998 1998
DEPOSITS $150,466,951 $144,801,613
FHLB ADVANCES $70,022,863 $65,451,449
OTHER LIABILITIES 8,390,613 7,502,754
Total liabilities 228,880,427 217,755,816
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 45,263,967 45,210,144
Retained earnings 15,937,232 15,487,717
Treasury Stock at cost, 350,200
& 310,500 shares, respectively (6,326,989) (5,545,540)
Unrealized gain on securities
available for sale, net 9,512,412 7,643,803
Unearned compensation (5,053,707) (5,277,786)
Total stockholders' equity 59,379,203 57,564,626
Total liabilities and
stockholders' equity $288,259,630 $275,320,442
The accompanying notes are an integral part of these statements
COMMUNITY FEDERAL BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months
Ended December 31,
1998 1997
INTEREST INCOME:
Interest and fees on loans 2,752,591 $2,595,266
Interest and dividends on securities
on Held to Maturity 36,940 59,060
Interest and dividends on securities
Available for Sale 1,707,136 1,146,038
Total interest income 4,496,667 3,800,364
INTEREST EXPENSE:
Interest on deposits 1,874,208 1,730,187
Other interest expense 859,834 321,175
Total interest expense 2,734,042 2,051,362
PROVISION FOR LOAN LOSSES 22,500 10,000
Net interest income after
provision for loan losses 1,740,125 1,739,002
NONINTEREST INCOME:
Deposit fees 35,366 19,736
Loan servicing fees 145,476 69,056
Other income 280,021 12,885
Total noninterest income 460,863 101,677
NONINTEREST EXPENSE:
Compensation and benefits 638,309 565,147
Occupancy and equipment 58,842 59,574
Other operating expense 258,444 215,206
Total noninterest expense 955,595 839,927
Income before income taxes 1,245,393 1,000,752
PROVISION FOR INCOME TAXES 433,655 340,746
NET INCOME $811,738 $660,006
Basic Earnings Per Share $0.21 $0.16
Diluted Earnings Per Share $0.20 $0.15
SHARES OUTSTANDING LESS UNALLOCATED ESOP 3,978,971 4,306,585
The accompanying notes are an integral part of these statements
COMMUNITY FEDERAL BANCORP, INC.
STATEMENT OF CASH FLOWS
December 31, 1998 AND 1997
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $811,738 $660,006
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 38,121 42,858
Amortization of Premium/discounts, net 117,743 (1,812)
Amortizatin of Unearned Compensation 277,902 275,825
Provision for loan losses 22,500 10,000
(Gain) loss on sale securities (2,086) 0
Changes in assets and liabilities:
Decrease in other assets (174,665) 43,436
Increase (decrease) in accrued expenses
and other liabilities 222,039 3,019,433
Total adjustments 501,554 3,389,740
Net cash provided by operating activities 1,313,292 4,049,746
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal collections and maturities
on securities available for sale 10,787,162 7,565,299
Principal collections and maturities
on securities held to maturity 311,062 263,000
Proceeds from sales of securities 3,501,114 0
(Purchase of) proceeds for the sale
of property and equipment, net (3,115) 317,122
Loan (originations) and principal repayments, net (3,125,517) (5,692,631)
Purchase of securities available for sale (19,599,878) (12,764,057)
Net cash used by investing activities (8,129,172) (10,311,267)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in customer deposits, net 5,665,338 1,183,089
Dividends paid (362,223) (344,318)
(Decrease) increase in advances from borrowers for
taxes and insurance 0 (280,729)
Purchase of stock for stock plan trust 0 (1,674)
Purchase of Treasury Stock (781,449) 0
Net change in FHLB advances 4,571,414 6,032,707
Net cash provided by financing activities 9,093,080 6,589,075
Net increase in cash and cash equivalents 2,277,200 327,554
CASH AND CASH EQUIVALENTS, beginning of year 4,070,714 5,437,003
CASH AND CASH EQUIVALENTS, end of period $6,347,914 $5,764,557
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 December 31, 1998, and for the three month
period 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 month
periods ended December 31, 1998 and 1997. Results of operations
for the current interim period are not necessarily indicative of
results expected for the fiscal year ended September 30, 1999.
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,
1998. The accounting policies followed by the Bank are set forth
in the summary of significant accounting policies in the Bank's
September 30, 1998 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 was
effective April 1, 1997. Under the Management Recognition and
Retention Plan ("MRP"), 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).
The aggregate fair market value of the shares purchased by the
MRP is considered unearned compensation at the time of purchase
and compensation is earned ratably over the stipulated vesting
period. Under the Company's 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 (462,875 shares of common stock) at
exercise prices equal to the market price of the common stock on
the date of grant. The Company accounts for the Stock Option
Plan under the provisions of Accounting Principles Board Opinion
No 25, Accounting for Stock Issued to Employees.
3. EARNINGS PER SHARE
Basic earning per share were computed by dividing net income by
the weighted average number of shares of common stock outstanding
during the three months ended December 31, 1998 and 1997. Common
stock outstanding consists of issued shares less treasury stock,
unallocated ESOP shares, and shares owned by the MRP and Stock
option plan trust. Diluted earnings per share for the three
months ended December 31, 1998 and 1997, were computed by
dividing net income by the weighted average number of shares of
common stock and the dilutive effect of the shares awarded under
the MRP and Stock Option plans, based on the treasury stock
method using an average fair market value of the stock during the
respective periods.
In 1997, the Company adopted SFAS No. 128, "Earnings Per Share,"
effective December 15, 1997. As a result, the Company's reported
earnings per share for 1997 were restated. The following table
represents the earnings per share calculations for the three
months ended December 31, 1998 and 1997, accompanied by the
effect of this accounting change on previously reported earnings
per share:
Per Share
For the Three Months Ended Income Shares Amount
December 31, 1998
Net Income $811,738
Basic earnings per share:
Income available to
common shareholders $811,738 3,834,146 $0.21
Dilutive Securities
Management recognition
plan shares 150,120
Stock option plan shares 241
Diluted earning per share:
Income available to
common shareholders
plus assumed conversions $881,738 3,984,507 $0.20
Per Share
For the Three Months Ended Income Shares Amount
December 31, 1998
Net Income $660,006
Basic earnings per share:
Income available to
common shareholders $660,006 4,132,040 $0.16
Dilutive Securities:
Management recognition
plan shares 174,545
Stock option plan shares 63,731
Diluted earnings per share:
Income available to
common shareholders
plus assumed conversion $660,006 4,370,316 $0.15
4. PENDING ACCOUNTING PRONOUNCEMENTS
The AICPA has issue Statements of Position 98-1, Accounting for
the cost of Computer Software Developed or Obtained for Internal
Use. This statement requires capitalization of external direct
cost of materials and services; payroll and payroll-related cost
for employees directly associated; and interest cost during
development of computer software for internal use (planning and
preliminary cost should be expensed). Also, capitalization cost
of computer software developed or obtained for internal use
should be amortized on a straight-line basis unless another
systematic and rational basis is more representative of the
software's use.
This statement is effective for financial statements for fiscal
years beginning after December 15, 1998 and is should not be
applied retroactively to Financial Statements of prior periods.
Statements of Financial Accounting Standards ("SFAS") No. 132,
"Employers' Disclosures about Pensions and Other Postretirement
Benefits," revises employers' disclosures about pension and other
postretirement benefit plans. It does no change the measurement
or recognition of those plans. It standardizes the disclosure
requirements for pensions and other postretirement benefits to
the extent practicable, requires additional information on
changes in the benefit obligations and fair values of plan assets
that will facilitate financial analysis, and eliminates certain
disclosures that are no longer as useful. The Statement suggest
combined formats for presentation of pension and other
postretirement benefit disclosures.
This Statement is effective for fiscal years beginning after
December 15, 1997. Earlier application is encouraged Restatement
of disclosures for earlier periods provided for comparative
purposes is required unless the information is no readily
available, in which case the notes to the financial statements
should include all available information and a description of the
information not available.
SFAS No 133, "Accounting for Derivatives Instruments and Hedge
Activities," establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments
embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities, It requires that an
entity recognize all derivatives as either assets or liabilities
in the statement of financial position and measure those
instruments at fain value.
This Statement is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. Initial application of this
Statement should be as of the beginning of an entity's fiscal
quarter, on that date, hedging relationships must be designated
anew and documented pursuant to the provisions of this Statement.
Earlier application of all of the provisions of this Statement is
encouraged, but it is permitted only as of the beginning of any
fiscal quarter that begins after issuance of this Statement.
This Statement should not be applied retroactively to financial
statements of prior periods.
Management believes there will be no material effect on the
consolidated financial statements from the adoption of these
pronouncements.
5. COMPREHENSIVE INCOME
The Company adopted SFAS No. 130 July 1, 1998. SFAS No. 130
established standards for reporting and display of comprehensive
income and its components
The Company has classified certain securities as available for
sale in accordance with Financial Accounting Standard Board
Statement No. 115. For the three month period ended December 31,
1998 the net unrealized gain on these securities increased by
$1.9 million. For the three month period ended December 31, 1997
the net unrealized gain on these securities increase by $2
million. Pursuant to Statement No. 115, any unrealized gain or
loss activity of available for sale securities is to be recorded
as an adjustment to a separate component of shareholder's equity,
net of income tax effect. Accordingly, for the three month
periods ended December 31, 1998 and 1997, the Company recognized
a corresponding adjustment in the net unrealized gain component
of equity
Since comprehensive income is a measure of all changes in equity
of an enterprise that result from transactions and other economic
events of the period, this change in unrealized gain serves to
increase or decrease comprehensive income. The following table
represents comprehensive income for the six mont periods ended
December 31, 1998 and 1997:
Three Months
Ended
December, 31,
1998 1997
Net Income $ 812 $ 660
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on securities 1,869 1,956
Comprehensive Income $2,681 $2,616
Part 1
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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 December 31, 1998 and
September 30, 1998
Total assets increased by $13 million, or 4.7%, from $275
million at September 30, 1998 to $288 million at December 31,
1998. The increase in total assets was primarily attributed to a
$7.7 million increase in securities available for sale and $3.1
million increase in loans receivable.
Equity increased $1.8 million since September 30, 1998, which was
primarily attributed to a $1.9 million increase in the unrealized
gain on securities available for sale, a $812,000 in net income
for the three month period, the purchase of $781,000 treasury
stock, the $278,000 amortization of unearned compensation and the
payment of a $362,600 quarterly cash dividend.
Comparison of Results of Operations for the Three Months Ended
December 31, 1998 and 1997
The company reported net income for the three months ended
December 31, 1998 of $812,000 as compared to $660,000 for the
three months ended December 31, 1997. The $152,000 or 23%
increase in income for the three months ended December 31, 1998
was primarily increased fee income and gain on sale of
securities.
Net Interest Income
Net interest income after provision for loan losses for the three
months ended December 31, 1998 amounted to $1.7 million the same
as the three months ended December 31, 1997. Total interest
income increased $696,000 during the quarter ended December 31,
1998 as compared to the same three month period of the prior
year. This increase resulted primarily from the increased
interest and fees on the higher average balances in securities
and loan receivable. Total interest expense increased $683,000
during the first quarter 1999 compared to the same three month
period of the previous year. The above resulted from the
increase in FHLB advances to help fund the $85 million growth in
Securities and the $11.5 million growth in loans receivable for
the quarter ended December 31, 1998.
Provision for Loan Losses
A $22,500 provision for loan losses was made during the first
quarter of 1999 to correspond with the volume in the mortgage
and consumer loan portfolio, as compared to $10,000 for the first
quarter of 1998.
.
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 December 31, 1998 were $894,000, compared to $987,000
at December 31, 1997.
Noninterest Income
Noninterest income increased $359,000 from $101,600 for the three
months ended December 31, 1997 to $460,900 for the three months
ended December 31, 1998. This increase was primarily
attributable to increased fee income and gains on sales of
securities, which are included in other income.
Noninterest Expense
Noninterest expense increased $115,700 from $839,900 for the
three months ended December 31, 1997 to $955,600 for the three
months ended December 31, 1998. Chief reason for the increase
was an increase in compensation expense associated with
additional staffing.
Provision for Income Tax
Income tax expense for the three months ended December 31, 1998
increased $93,000 to $434,000, as compared to income tax expense
of $341,000 for the three months ended December 31, 1997. This
increase is the result of the 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 December 31, 1998, the Bank was in compliance with
all regulatory capital requirements.
Year 2000 Issue
The Company is aware of the issue associated with the programming
code in existing computer systems as the Year 2000 approaches.
The Year 2000 issue is the results of computer programs being
written to store and process data using two digits rather than
four to define the applicable year. Computer programs that have
time sensitive coding may recognize a date using "00" as the year
1900 rather than the year 2000. Systems that do not properly
recognize such information could generate erroneous data or cause
systems to fail.
The Bank has conducted a review of its computer systems to
identify the systems that could be affected by the Year 2000
issue and has developed an implementation plan to resolve the
issue. The majority of the Bank's data processing is provided by
a third party service bureau. The service bureau is actively
involved in resolving Year 2000 issues and has provided the Bank
with frequent updates regarding its progress. The service bureau
has advised the Bank that it has resolved the majority of the
Year 2000 issues. The Bank tested the service bureau's system
for Year 2000 compliance during November of 1998. The Bank
presently believes that, based on the progress and testing of the
Bank's service bureau, the Year 2000 will not posse significant
operational problems for the Bank's computer system. In
addition, the Bank has developed a contingency plan to address
any unforeseen problems. The total cost of Year 2000 projects
are not estimated to be material to the financial performance of
the Company.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company and any subsidiaries may be a
party to various legal proceedings incident to its or their
business. At June 30, 1998, there were no legal proceedings to
which the Company or any subsidiary was a party, or to which any
of their property was subject, which were expected by management
to result in a material loss.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
None
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.
Date: February 11, 1999
Date: February 11, 1999
COMMUNITY FEDERAL BANCORP,
INC.
(S) Jim Ingram
Jim Ingram,
Chief Executive Officer
S) Sherry McCarty
Sherry McCarty,
Chief Financial Officer