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 Quarterly Period Ended March 31, 2007 Commission File No. 000-29640
COMMUNITY FIRST BANCORPORATION
-------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
South Carolina 58-2322486
------------------------------- --------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
449 HIGHWAY 123 BYPASS
SENECA, SOUTH CAROLINA 29678
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(Address of principal executive offices, zip code)
(864) 886-0206
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(Registrant's telephone number, including area code)
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 by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: Common Stock, no par
or stated value, 2,972,418 Shares Outstanding on April 30, 2007
COMMUNITY FIRST BANCORPORATION
FORM 10-Q
Index
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets ................................. 3
Consolidated Statements of Income ........................... 4
Consolidated Statements of Changes in Shareholders' Equity .. 5
Consolidated Statements of Cash Flows ....................... 6
Notes to Unaudited Consolidated Financial Statements ........ 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........................ 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk .. 14
Item 4T. Controls and Procedures ..................................... 14
PART II - OTHER INFORMATION
Item 6. Exhibits .................................................... 15
SIGNATURE ................................................................... 16
2
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
COMMUNITY FIRST BANCORPORATION
Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
2007 2006
---- ----
(Dollars in thousands)
Assets
Cash and due from banks ................................................................... $ 8,562 $ 6,952
Interest bearing deposits due from banks .................................................. 32 67
Federal funds sold ........................................................................ 39,945 24,126
--------- ---------
Cash and cash equivalents ............................................................. 48,539 31,145
Securities available-for-sale ............................................................. 98,165 102,487
Securities held-to-maturity (fair value $6,309 for 2007 and $6,530 for 2006) .............. 6,361 6,595
Other investments ......................................................................... 975 980
Loans ..................................................................................... 212,053 202,966
Allowance for loan losses ............................................................. (2,197) (2,242)
--------- ---------
Loans - net ........................................................................ 209,856 200,724
Premises and equipment - net .............................................................. 7,904 7,937
Accrued interest receivable ............................................................... 2,084 2,182
Other assets .............................................................................. 1,494 1,859
--------- ---------
Total assets ....................................................................... $ 375,378 $ 353,909
========= =========
Liabilities
Deposits
Noninterest bearing ................................................................... $ 40,505 $ 40,576
Interest bearing ...................................................................... 291,524 267,381
--------- ---------
Total deposits ..................................................................... 332,029 307,957
Accrued interest payable .................................................................. 3,020 2,703
Short-term borrowings ..................................................................... - 4,500
Long-term debt ............................................................................ 5,500 5,500
Other liabilities ......................................................................... 378 34
--------- ---------
Total liabilities .................................................................. 340,927 320,694
--------- ---------
Shareholders' equity
Common stock - no par value; 10,000,000 shares authorized; issued and
outstanding - 2,972,418 for 2007 and 2,958,558 for 2006 ............................... 30,137 30,061
Additional paid-in capital ................................................................ 593 593
Retained earnings ......................................................................... 4,242 3,285
Accumulated other comprehensive income (loss) ............................................. (521) (724)
--------- ---------
Total shareholders' equity ......................................................... 34,451 33,215
--------- ---------
Total liabilities and shareholders' equity ......................................... $ 375,378 $ 353,909
========= =========
See accompanying notes to unaudited consolidated financial statements.
3
COMMUNITY FIRST BANCORPORATION
Consolidated Statements of Income
(Unaudited)
Three Months Ended
March 31,
2007 2006
---- ----
(Dollars in thousands,
except per share)
Interest income
Loans, including fees ............................. $3,978 $3,090
Interest bearing balances due from banks .......... 1 2
Securities
Taxable ......................................... 938 931
Tax-exempt ...................................... 187 120
Other investments ................................. 15 11
Federal funds sold ................................ 542 493
------ ------
Total interest income ......................... 5,661 4,647
------ ------
Interest expense
Time deposits $100M and over ...................... 918 732
Other deposits .................................... 2,224 1,534
Short-term borrowings ............................. 3 2
Long-term debt .................................... 54 62
------ ------
Total interest expense ........................ 3,199 2,330
------ ------
Net interest income .................................... 2,462 2,317
Provision for loan losses .............................. - 25
------ ------
Net interest income after provision .................... 2,462 2,292
------ ------
Other income
Service charges on deposit accounts ............... 334 364
ATM interchange and other fees .................... 105 86
Credit life insurance commissions ................. 7 10
Other income ...................................... 40 79
------ ------
Total other income ............................ 486 539
------ ------
Other expenses
Salaries and employee benefits .................... 811 729
Net occupancy expense ............................. 88 69
Furniture and equipment expense ................... 102 104
Amortization of computer software ................. 59 60
ATM interchange and related expenses .............. 70 78
Other expense ..................................... 404 396
------ ------
Total other expenses .......................... 1,534 1,436
------ ------
Income before income taxes ............................. 1,414 1,395
Income tax expense ..................................... 457 484
------ ------
Net income ............................................. $ 957 $ 911
====== ======
Per share*
Net income ........................................ $ 0.32 $ 0.31
Net income, assuming dilution ..................... 0.30 0.29
----------------------
* Per share information has been retroactively adjusted to reflect a 5% stock
dividend effective December 18, 2006.
See accompanying notes to unaudited consolidated financial statements.
4
COMMUNITY FIRST BANCORPORATION
Consolidated Statements of Changes in Shareholders' Equity
(Unaudited)
Common Stock
------------ Additional Accumulated
Number of Paid-in Retained Other Comprehensive
Shares Amount Capital Earnings Income (Loss) Total
------ ------ ------- -------- ------------- -----
(Dollars in thousands)
Balance, January 1, 2006 .......................... 2,798,409 $ 26,956 $ - $ 3,296 $ (1,397) $ 28,855
----------
Comprehensive income:
Net income .................................... - - - 911 - 911
----------
Unrealized holding gains and losses
on available-for-sale securities
arising during the period, net of
income taxes of $87 ......................... - - - - (154) (154)
----------
Total other comprehensive income .......... (154)
----------
Total comprehensive income .............. 757
----------
Share-based compensation .......................... - - 45 - - 45
---------- ---------- ---------- ---------- ---------- ----------
Balance, March 31, 2006 ........................... 2,798,409 $ 26,956 $ 45 $ 4,207 $ (1,551) $ 29,657
========== ========== ========== ========== ========== ==========
Balance, January 1, 2007 .......................... 2,958,558 $ 30,061 $ 593 $ 3,285 $ (724) $ 33,215
----------
Comprehensive income:
Net income .................................... - - - 957 - 957
----------
Unrealized holding gains and losses
on available-for-sale securities
arising during the period, net of
income taxes of $114 ........................ - - - - 203 203
----------
Total other comprehensive income .......... 203
----------
Total comprehensive income .............. 1,160
----------
Exercise of employee stock options ................ 13,860 76 - - - 76
---------- ---------- ---------- ---------- ---------- ----------
Balance, March 31, 2007 ........................... 2,972,418 $ 30,137 $ 593 $ 4,242 $ (521) $ 34,451
========== ========== ========== ========== ========== ==========
See accompanying notes to unaudited consolidated financial statements.
5
COMMUNITY FIRST BANCORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
2007 2006
---- ----
(Dollars in thousands)
Operating activities
Net income ............................................................................ $ 957 $ 911
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for loan losses ...................................................... - 25
Depreciation ................................................................... 88 76
Amortization of net loan fees and costs ........................................ (72) (30)
Securities accretion and premium amortization .................................. 27 46
Gain on sale of foreclosed assets .............................................. - (31)
Decrease (increase) in interest receivable ..................................... 98 (102)
Increase in interest payable ................................................... 317 339
Decrease in prepaid expenses and other assets .................................. 251 20
Increase in other accrued expenses ............................................. 344 475
Share-based compensation ....................................................... - 45
-------- --------
Net cash provided by operating activities .................................. 2,010 1,774
-------- --------
Investing activities
Purchases of available-for-sale securities ............................................ (5,058) (10,259)
Maturities, calls and paydowns of securities available-for-sale ....................... 9,669 7,767
Maturities, calls and paydowns of securities held-to-maturity ......................... 235 277
Disposals of other investments ........................................................ 5 -
Net increase in loans made to customers ............................................... (9,060) (2,086)
Purchases of premises and equipment ................................................... (55) (372)
Proceeds of sale of foreclosed assets ................................................. - 168
-------- --------
Net cash used by investing activities ...................................... (4,264) (4,505)
-------- --------
Financing activities
Net increase in demand deposits, interest
bearing transaction accounts and savings accounts ................................. 4,366 11,997
Net increase in certificates of deposit and other
time deposits ..................................................................... 19,706 5,335
Decrease in short-term borrowings ..................................................... (4,500) (3,500)
Exercise of employee stock options .................................................... 76 -
-------- --------
Net cash provided by financing activities .................................. 19,648 13,832
-------- --------
Increase in cash and cash equivalents ...................................................... 17,394 11,101
Cash and cash equivalents, beginning ....................................................... 31,145 32,450
-------- --------
Cash and cash equivalents, ending .......................................................... $ 48,539 $ 43,551
======== ========
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for
Interest, net of $15 capitalized during construction .............................. $ 2,882 $ 1,991
Income taxes ...................................................................... - -
Noncash investing and financing activities:
Other comprehensive income (loss) ................................................. 203 (154)
See accompanying notes to unaudited consolidated financial statements.
6
COMMUNITY FIRST BANCORPORATION
Notes to Unaudited Consolidated Financial Statements
Accounting Policies - A summary of significant accounting policies is included
in Community First Bancorporation's (the "Company") Annual Report on Form 10-K
for the year ended December 31, 2006 filed with the Securities and Exchange
Commission. Certain amounts in the 2006 financial statements have been
reclassified to conform to the current presentation.
Management Opinion - In the opinion of management, the accompanying unaudited
consolidated financial statements of Community First Bancorporation reflect all
adjustments necessary for a fair presentation of the results of the periods
presented. Such adjustments were of a normal, recurring nature.
Nonperforming Loans - As of March 31, 2007, there were $193,000 in nonaccrual
loans and no loans 90 days or more past due and still accruing interest.
Earnings Per Share - Basic earnings per common share is computed by dividing net
income applicable to common shares by the weighted average number of common
shares outstanding. Diluted earnings per share is computed by dividing
applicable net income by the weighted average number of common shares
outstanding and any dilutive potential common shares and dilutive stock options.
It is assumed that all dilutive stock options are exercised at the beginning of
each period and that the proceeds are used to purchase shares of the Company's
common stock at the average market price during the period. All 2006 per share
information has been retroactively adjusted to give effect to a 5% stock
dividend effective December 18, 2006. Net income per share and net income per
share, assuming dilution, were computed as follows:
(Unaudited)
Three Months Ended
March 31,
---------
2007 2006
----- ----
(Dollars in thousands,
except per share amounts)
Net income per share, basic
Numerator - net income ............................................................. $ 957 $ 911
========== ==========
Denominator
Weighted average common shares issued and outstanding ............................ 2,969,325 2,938,329
========== ==========
Net income per share, basic ........................................... $ .32 $ .31
========== ==========
Net income per share, assuming dilution
Numerator - net income ............................................................. $ 957 $ 911
========== ==========
Denominator
Weighted average common shares issued and outstanding ............................ 2,969,325 2,938,329
Effect of dilutive stock options ................................................. 220,170 186,374
---------- ----------
Total shares .......................................................... 3,189,495 3,124,703
========== ==========
Net income per share, assuming dilution ............................... $ .30 $ .29
========== ==========
Stock-Based Compensation - As of March 31, 2007, the Company had two stock-based
compensation plans. Effective January 1, 2006, the Company began accounting for
compensation expenses related to stock options granted to employees and
non-officer directors under the recognition and measurement principles of
Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based
Payment"("SFAS 123(R)) using the modified prospective application method.
New Accounting Pronouncements - The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 159 "The Fair Value Option for
Financial Assets and Financial Liabilities," ("SFAS No. 159" or the "Statement")
which is effective for fiscal years beginning after November 15, 2007. Under the
provisions of SFAS No. 159, entities may choose, but are not required, to
measure many financial instruments and certain other items at their fair values,
with changes in the fair values of those instruments reported in earnings. While
7
most of the Statement's provisions apply only to entities that elect the fair
value option, SFAS No. 159 also applies to all entities with trading and
available-for-sale securities, such as the Company. The Company has not
determined what effect, if any, the Statement will have on its future financial
statements, other agreements, or planned or intended changes in business
practices.
Item 2. - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward Looking Statements
Statements included in this report which are not historical in nature
are intended to be, and are hereby identified as "forward looking statements"
for purposes of the safe harbor provided by Section 21E of the Securities
Exchange Act of 1934, as amended. Forward-looking statements include statements
concerning plans, objectives, goals, strategies, future events or performance
and underlying assumptions and other statements which are other than statements
of historical facts. Such forward-looking statements may be identified, without
limitation, by the use of the words "anticipates," "believes," "estimates,"
"expects," "intends," "plans," "predicts," "projects," and similar expressions.
The Company's expectations, beliefs and projections are expressed in good faith
and are believed by the Company to have a reasonable basis, including without
limitation, management's examination of historical operating trends, data
contained in the Company's records and other data available from third parties,
but there can be no assurance that management's beliefs, expectations or
projections will result or be achieved or accomplished. The Company cautions
readers that forward-looking statements, including without limitation, those
relating to the Company's recent and continuing expansion, its future business
prospects, revenues, working capital, liquidity, capital needs, interest costs,
income, and adequacy of the allowance for loan losses, are not guarantees of
future performance and are subject to risks and uncertainties that could cause
actual results to differ materially from those indicated in the forward-looking
statements, due to several important factors herein identified, among others,
and other risks and factors identified from time to time in the Company's
reports filed with the Securities and Exchange Commission. The risks and
uncertainties include, but are not limited to
o our growth and our ability to maintain growth;
o governmental monetary and fiscal policies, as well as legislative and
regulatory changes;
o the effect of interest rate changes on our level and composition of
deposits, loan demand and the value of our collateral and securities;
o the effects of competition from other financial institutions operating
in our market area and elsewhere, including institutions operating
locally, nationally and internationally, together with competitors
that offer banking products and services by mail, telephone and
computer and/or the Internet;
o failure of assumptions underlying the establishment of our allowance
for loan losses, including the value of collateral securing loans; and
o loss of consumer confidence and economic disruptions resulting from
terrorist activities.
The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Changes in Financial Condition
During the first three months of 2007, interest bearing deposits
increased by $24,143,000, or 9.0%. Certificates of deposit issued in
denominations of $100,000 grew by $15,192,000, or 22.3% during the period
primarily due to activity generated by local government bodies. These funds were
used primarily to repay short-term borrowings of $4,500,000 and to fund growth
in federal funds sold. Loan growth was funded primarily by increases in
non-governmental deposits and by allowing reductions to occur in some categories
of securities. The Company believes its higher federal funds sold position gives
it increased flexibility to fund loan requests or make investments in securities
at attractive yields, and to meet normal demands for deposit withdrawals by its
customers, while maintaining its exposure to future interest rate changes at an
acceptable level.
Results of Operations
The Company recorded consolidated net income of $957,000 or $.32 per
share for the first quarter of 2007 compared with $911,000, or .$31 per share
for the first quarter of 2006. Net income per share, assuming dilution was $.30
for the 2007 period and $.29 for the 2006 period. Net income per share amounts
for 2006 have been retroactively adjusted to reflect a five percent stock
dividend effective December 18, 2006.
8
Summary Income Statement
------------------------
(Dollars in thousands)
For the Three Months Ended March 31, 2007 2006 Dollar Change Percentage Change
---- ---- ------------- -----------------
Interest income .......................... $ 5,661 $ 4,647 $ 1,014 21.8%
Interest expense ......................... 3,199 2,330 869 37.3%
------- ------- -------
Net interest income ...................... 2,462 2,317 145 6.3%
Provision for loan losses ................ - 25 (25) -100.0%
Noninterest income ....................... 486 539 (53) -9.8%
Noninterest expenses ..................... 1,534 1,436 98 6.8%
Income tax expense ....................... 457 484 (27) -5.6%
------- ------- -------
Net income ............................... $ 957 $ 911 $ 46 5.0%
======= ======= =======
Net Interest Income
Net interest income is the principal source of the Company's earnings.
For the first quarter of 2007, net interest income totaled $2,462,000, an
increase of $145,000 or 6.3% over the amount for the same period of 2006. The
yield on interest earning assets increased to 6.39% for the 2007 period,
compared with 5.69% for the 2006 period and the average rates paid for interest
bearing liabilities were 4.34% and 3.42%, respectively. Accordingly, the average
interest rate spread for the 2007 period was 22 basis points lower than for the
2006 period.
Market interest rates during the 2007 period were slightly higher than
in the first quarter of 2006. In mid-2006, the Federal Reserve Board ended its
prolonged process of raising short-term interest rates, which began in 2004, by
adopting a more neutral stance toward interest rates. In the 2007 three-month
period, the rates paid by the Company on deposits increased more than the rates
that it receives from its loans and other invested funds primarily in response
to competitive pressures. By increasing the percentage of loans to average
earning assets, the Company believes that it can mitigate the effects of the
decreased interest rate spread. The Company will not, however, lower its loan
underwriting standards to accomplish this goal. The following table provides an
analysis of the average amounts of the Company's assets and liabilities and the
effective yields and rates on the various categories of its interest earning
assets and interest bearing liabilities for the first quarter of 2007 and 2006.
9
Average Balances, Yields and Rates
Three Months Ended March 31,
----------------------------
2007 2006
Interest Interest
Average Income/ Yields/ Average Income/ Yields/
Balances Expense Rates (1) Balances Expense Rates (1)
-------- ------- --------- -------- ------- ---------
(Dollars in thousands)
Assets
Interest-bearing deposits due from banks .................... $ 65 $ 1 6.24% $ 172 $ 2 4.72%
Securities
Taxable ............................................... 88,406 938 4.30% 101,412 931 3.72%
Tax exempt (2) ........................................ 19,692 187 3.85% 12,242 120 3.98%
--------- ------- -------- -------
Total investment securities ...................... 108,098 1,125 4.22% 113,654 1,051 3.75%
Other investments ........................................... 980 15 6.21% 948 11 4.71%
Federal funds sold .......................................... 42,231 542 5.20% 45,260 493 4.42%
Loans (2)(3) ................................................ 207,998 3,978 7.76% 170,931 3,090 7.33%
--------- ------- -------- -------
Total interest earning assets .................... 359,372 5,661 6.39% 330,965 4,647 5.69%
Cash and due from banks ..................................... 7,684 6,817
Allowance for loan losses ................................... (2,228) (2,264)
Valuation allowance - AFS securities ........................ (1,216) (2,224)
Premises and equipment ...................................... 7,907 7,022
Other assets ................................................ 3,788 3,878
--------- --------
Total assets ..................................... $ 375,307 $344,194
========= ========
Liabilities and shareholders' equity
Interest bearing deposits
Interest bearing transaction accounts ................. $ 55,233 $ 433 3.18% $ 35,743 $ 141 1.60%
Savings ............................................... 40,297 353 3.55% 44,214 314 2.88%
Time deposits $100M and over .......................... 80,238 918 4.64% 76,493 732 3.88%
Other time deposits ................................... 117,466 1,438 4.96% 112,943 1,079 3.87%
--------- ------- -------- -------
Total interest bearing deposits .................. 293,234 3,142 4.35% 269,393 2,266 3.41%
Short-term borrowings ....................................... 50 3 24.33% 78 2 10.40%
Long-term debt .............................................. 5,500 54 3.98% 6,500 62 3.87%
--------- ------- -------- -------
Total interest bearing liabilities ............... 298,784 3,199 4.34% 275,971 2,330 3.42%
Noninterest bearing demand deposits ......................... 39,691 36,406
Other liabilities ........................................... 3,178 2,503
Shareholders' equity ........................................ 33,654 29,314
--------- --------
Total liabilities and shareholders' equity .................. $ 375,307 $344,194
========= ========
Interest rate spread ........................................ 2.05% 2.27%
Net interest income and net yield on earning assets ......... $ 2,462 2.78% $ 2,317 2.84%
Interest free funds supporting earning assets ............... $ 60,588 $ 54,994
-------------------------------------
(1) Yields and rates are annualized
(2) Yields on tax exempt instruments have not been adjusted to a tax-equivalent
basis.
(3) Nonaccruing loans are included in the loan balance and income from such
loans is recognized on a cash basis. The amounts of such loans and income
are not material.
Upon opening its newest Seneca office in 2006, the Company began
offering a premium rate of interest for certain relatively liquid interest
10
bearing accounts. While there have been some incremental decreases in those
rates recently, the rates offered for those deposits continue to be relatively
high from an historical perspective. In addition, other local financial
institutions have increased their rates for these and other similar products as
well and, as a result, competition for these deposits among these institutions
is intense.
Over the course of the past few years, the Company added to its
holdings of tax-exempt state, county and municipal securities significantly and,
until recently, the yields on those investments increased as well. As a result
of the growth in the amounts of such securities held, the Company's 2007 first
quarter income includes $187,000 earned on those investments, compared with
$120,000 in the same period of 2006.
The Company continues to pursue strategies that are expected to
increase its market share in its local market areas in Anderson and Oconee
Counties of South Carolina. The Company serves Oconee County from four offices
which are located in Seneca, Walhalla and Westminster. The Company serves the
Anderson County market from offices in Anderson and Williamston. The Company is
planning to open an additional office on Highway 81 in Anderson County.
Construction is expected to begin during the second quarter of 2007.
Provision and Allowance for Loan Losses
The Company made no provision for loan losses during the 2007 first
quarter, compared with $25,000 for the comparable period of 2006. At March 31,
2007, the allowance for loan losses was 1.04% of loans, down slightly from 1.10%
at December 31, 2006. During the 2007 three month period, net charge-offs
totaled $45,000, compared with $19,000 in net charge offs during the same period
of 2006. As of March 31, 2007, there was $193,000 in nonaccrual loans and no
loans 90 days or more past due and still accruing interest. As of March 31,
2006, there was $579,000 in nonaccrual loans and no loans 90 days or more past
due and still accruing interest. The activity in the allowance for loan losses
is summarized in the table below:
Three Months Ended Year Ended Three Months Ended
March 31, 2007 December 31, 2006 March 31, 2006
-------------- ----------------- --------------
(Dollars in thousands)
Allowance at beginning of period ................................. $ 2,242 $ 2,266 $ 2,266
Provision for loan losses ........................................ - 65 25
Net charge-offs .................................................. (45) (89) (19)
--------- --------- ---------
Allowance at end of period ....................................... $ 2,197 $ 2,242 $ 2,272
========= ========= =========
Allowance as a percentage of loans outstanding
at period end .................................................. 1.04% 1.10% 1.33%
Loans at end of period ........................................... $ 212,053 $ 202,966 $ 171,415
========= ========= =========
11
Non-Performing and Potential Problem Loans
90 Days or
More Past Due Total Percentage Percentage
Nonaccrual and Still Nonperforming of Total Potential of Total
Loans Accruing Loans Loans Problem Loans Loans
----- -------- ----- ----- ------------- -----
(Dollars in thousands)
January 1, 2006 ...................... $ 900 $ 5 $ 905 0.53% $ 2,148 1.27%
Net change ........................... (321) (5) (326) 615
----- ---- ----- -------
March 31, 2006 ....................... 579 - 579 0.34% 2,763 1.61%
Net change ........................... (82) - (82) 1,047
----- ---- ----- -------
June 30, 2006 ........................ 497 - 497 0.27% 3,810 2.05%
Net change ........................... (16) - (16) (151)
----- ---- ----- -------
September 30, 2006 ................... 481 - 481 0.25% 3,659 1.89%
Net change ........................... (431) - (431) (483)
----- ---- ----- -------
December 31, 2006 .................... 50 - 50 0.02% 3,176 1.56%
Net change ........................... 143 - 143 (151)
----- ---- ----- -------
March 31, 2007 ....................... $ 193 $ - $ 193 0.09% $ 3,025 1.43%
===== ==== ===== =======
Potential problem loans include loans, other than non-performing loans,
that management has identified as having possible credit problems sufficient to
cast doubt upon the abilities of the borrowers to comply with the current
repayment terms. However, the amount of potential problem loans does not reflect
management's expectations of losses, if any, that may be realized from those
loans. As of March 31, 2007, approximately 84.7% of the dollar amount of
potential problem loans was secured by real estate, 7.4% was secured by
vehicles, and approximately 3.7% represented unsecured loans.
Noninterest Income
Noninterest income totaled $486,000 for the first quarter of 2007,
compared with $539,000 for the 2006 quarter. Service charges on deposit accounts
in the 2007 period were $334,000 representing a decrease of $30,000 from the
prior year period. Fewer fees were assessed in the 2007 period as customer usage
of an overdraft protection product declined. Mortgage brokerage income for the
first quarter of 2007 was approximately $9,000 less than in the 2006 period. A
gain of $31,000 from the sale of foreclosed assets was recognized in the 2006
period, but there was no comparable activity in the 2007 period.
Noninterest Expenses
Noninterest expenses totaled $1,534,000 for the first quarter of 2007
compared with $1,436,000 for the first quarter of 2006, representing an increase
of $98,000 or 6.8%. Salaries and employee benefits increased by $82,000, or
11.2%, to $811,000. This increase resulted primarily from normal salary
increases, which are granted from time to time, an increase in the number of
employees associated with the Company's growth, and an increase in anticipated
employee incentive bonuses. For the first quarter of 2006, this category
included $20,000 of share-based compensation expenses that resulted from the
adoption of SFAS 123(R).
Occupancy and furniture and equipment expenses for the first quarter of
2007 increased by $17,000 compared with the 2006 period, primarily due to the
opening of the Company's new Seneca banking and administrative offices in the
second quarter of 2006.
Although income before income taxes was slightly higher than for the
same period of 2006, income tax expense for the first quarter of 2007 was lower
because of the 2007 increase in interest income from tax-exempt securities.
Liquidity
Liquidity is the ability to meet current and future obligations through
the liquidation or maturity of existing assets or the acquisition of additional
liabilities. The Company manages both assets and liabilities to achieve
appropriate levels of liquidity. Cash and short-term investments are the
Company's primary sources of asset liquidity. These funds provide a cushion
against short-term fluctuations in cash flow from both deposits and loans.
Securities available-for-sale is the Company's principal source of secondary
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asset liquidity. However, the availability of this source is influenced by
market conditions. Individual and commercial deposits are the Company's primary
source of funds for credit activities. The Company also has significant amounts
of credit availability under its FHLB lines of credit and federal funds
purchased facilities.
As of March 31, 2007, the ratio of loans to total deposits was 63.9%,
compared with 65.9% as of December 31, 2006. Total deposits as of March 31, 2007
were $332,029,000, an increase of $24,072,000 or 7.8% over the amount as of
December 31, 2006. Management believes that the Company's liquidity sources are
adequate to meet its operating needs.
Capital Resources
The Company's capital base increased by $1,236,000 since December 31,
2006 as the result of net income of $957,000 for the first three months of 2007,
plus a $203,000 change in unrealized gains and losses on available-for-sale
securities, net of deferred income tax effects, and $76,000 from the exercise of
employee stock options.
The Company and its banking subsidiary (the "Bank") are subject to
regulatory risk-based capital adequacy standards. Under these standards, bank
holding companies and banks are required to maintain certain minimum ratios of
capital to risk-weighted assets and average total assets. Under the provisions
of the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA),
federal bank regulatory authorities are required to implement prescribed "prompt
corrective actions" upon the deterioration of the capital position of a bank. If
the capital position of an affected institution were to fall below certain
levels, increasingly stringent regulatory corrective actions are mandated.
The March 31, 2007 risk based capital ratios for the Company and the
Bank are presented in the following table, compared with the "well capitalized"
(Bank only) and minimum ratios under the regulatory definitions and guidelines:
Total
Tier 1 Capital Leverage
------ ------- --------
Community First Bancorporation ............ 15.0% 16.0% 9.3%
Community First Bank ...................... 14.5% 15.4% 9.0%
Minimum "well-capitalized" requirement .... 6.0% 10.0% 6.0%
Minimum requirement ....................... 4.0% 8.0% 5.0%
Off-Balance-Sheet Arrangements
In the normal course of business, the Bank is a party to financial instruments
with off-balance-sheet risk including commitments to extend credit and standby
letters of credit. Such instruments have elements of credit risk in excess of
the amount recognized in the balance sheet. The exposure to credit loss in the
event of nonperformance by the other parties to the financial instruments for
commitments to extend credit and standby letters of credit is represented by the
contractual notional amount of those instruments. Generally, the same credit
policies used for on-balance-sheet instruments, such as loans, are used in
extending loan commitments and standby letters of credit.
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Following are the off-balance-sheet financial instruments whose contract amounts
represent credit risk:
March 31, 2007
--------------
(Dollars in
thousands)
Loan commitments ............... $ 36,487
Standby letters of credit ...... 1,114
Loan commitments involve agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and some involve
payment of a fee. Many of the commitments are expected to expire without being
fully drawn; therefore, the total amount of loan commitments does not
necessarily represent future cash requirements. Each customer's creditworthiness
is evaluated on a case-by-case basis. The amount of collateral obtained, if any,
upon extension of credit is based on management's credit evaluation of the
borrower. Collateral held varies but may include commercial and residential real
properties, accounts receivable, inventory and equipment.
Standby letters of credit are conditional commitments to guarantee the
performance of a customer to a third party. The credit risk involved in issuing
standby letters of credit is the same as that involved in making loan
commitments to customers. Many letters of credit will expire without being drawn
upon and do not necessarily represent future cash requirements. The Bank
receives fees for loan commitments and standby letters of credit. The amount of
such fees was not material for the three months ended March 31, 2007.
As described under "Liquidity," management believes that its various sources of
liquidity provide the resources necessary for the Bank to fund the loan
commitments and to perform under standby letters of credit, if the need arises.
Neither the Company nor the Bank is involved in other off-balance sheet
contractual relationships or transactions that could result in liquidity needs
or other commitments or significantly impact earnings.
Item 3. - Quantitative and Qualitative Disclosures About Market Risk
The Company's exposure to market risk is primarily related to the risk of loss
from adverse changes in market prices and rates. This risk arises principally
from interest rate risk inherent in the Company's lending, deposit gathering and
borrowing activities. Management actively monitors and manages its interest rate
risk exposure. Although the Company manages other risks, such as credit quality
and liquidity risk in the normal course of business, management considers
interest rate risk to be its most significant market risk and this risk could
potentially have the largest material effect on the Company's financial
condition and results of operations. Other types of market risk, such as
commodity price risk and foreign currency exchange risk, do not arise in the
normal course of the Company's community banking operations.
The Company uses a simulation model to assist in achieving consistent growth in
net interest income while managing interest rate risk. As of March 31, 2007, the
model indicates that net interest income would increase $74,000 and net income
would increase $45,000 in the next twelve months if interest rates rose by 100
basis points. Conversely, net interest income would decrease $148,000 and net
income would decrease $91,000 in the next twelve months if interest rates
declined by 100 basis points. In the current interest rate environment, it
appears unlikely that there will be any large changes in interest rates in the
immediate future. The prospective effects of hypothetical interest rate changes
are based on a number of assumptions, including the relative levels of market
interest rates and prepayment assumptions affecting loans, and should not be
relied on as indicative of actual future results. The prospective effects also
do not contemplate potential actions that the Company, its customers and the
issuers of its investment securities could undertake in response to changes in
interest rates.
As of March 31, 2007, there was no significant change from the interest rate
sensitivity analysis for the various changes in interest rates calculated as of
December 31, 2006. The foregoing disclosures related to the Company's market
risk should be read in conjunction with Management's Discussion and Analysis of
Financial Condition and Results of Operations included in the 2006 Annual Report
on Form 10-K filed with the Securities and Exchange Commission.
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Item 4T. - Controls and Procedures
Based on the evaluation required by 17 C.F.R. Section 240.13a-15(b) or
240.15d-15(b) of the issuer's disclosure controls and procedures (as defined in
17 C.F.R. Sections 240.13a-15(e) and 240.15d-15(e)), the issuer's chief
executive officer and chief financial officer concluded such controls and
procedures, as of the end of the period covered by this report, were effective.
There has been no change in the Company's internal control over financial
reporting during the most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, the Company's internal control over
financial reporting.
PART II - OTHER INFORMATION
Item 6. - Exhibits
Exhibits 31. Rule 13a-14(a)/15d-14(a) Certifications
32. Certifications Pursuant to 18 U.S.C. Section 1350
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SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
COMMUNITY FIRST BANCORPORATION
May 11, 2007 /s/ Frederick D. Shepherd, Jr.
----------------- --------------------------------------------
Date Frederick D. Shepherd, Jr., Chief Executive
Officer and Chief Financial Officer
16
EXHIBIT INDEX
31. Rule 13a-14(a)/15d-14(a) Certifications
32. Certifications Pursuant to 18 U.S.C. Section 1350
17