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, 2008 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, a non-accelerated filer, or a smaller reporting
company. See the definitions of "large accelerated filer," "accelerated filer"
and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
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, 3,359,203 Shares Outstanding on April 30, 2008
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 15
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,
2008 2007
----- ----
(Dollars in thousands)
Assets
Cash and due from banks ................................................................... $ 10,258 $ 10,272
Interest bearing deposits due from banks .................................................. 1,146 165
Federal funds sold ........................................................................ 27,804 24,236
--------- ---------
Cash and cash equivalents ............................................................. 39,208 34,673
Securities available-for-sale ............................................................. 107,635 99,026
Securities held-to-maturity (fair value $5,508 for 2008 and $5,625 for 2007) .............. 5,446 5,663
Other investments ......................................................................... 927 840
Loans ..................................................................................... 251,891 244,131
Allowance for loan losses ............................................................. (2,598) (2,574)
--------- ---------
Loans - net ........................................................................ 249,293 241,557
Premises and equipment - net .............................................................. 8,879 8,621
Accrued interest receivable ............................................................... 2,542 2,529
Bank-owned life insurance ................................................................. 8,201 7,108
Other assets .............................................................................. 1,756 2,131
--------- ---------
Total assets ....................................................................... $ 423,887 $ 402,148
========= =========
Liabilities
Deposits
Noninterest bearing ................................................................... $ 40,467 $ 42,289
Interest bearing ...................................................................... 334,602 313,578
--------- ---------
Total deposits ..................................................................... 375,069 355,867
Accrued interest payable .................................................................. 3,922 3,480
Long-term debt ............................................................................ 4,500 4,500
Other liabilities ......................................................................... 738 391
--------- ---------
Total liabilities .................................................................. 384,229 364,238
--------- ---------
Shareholders' equity
Common stock - no par value; 10,000,000 shares authorized; issued and
outstanding - 3,359,203 for 2008 and
3,324,105 for 2007 .................................................................... 35,189 35,009
Additional paid-in capital ................................................................ 681 681
Retained earnings ......................................................................... 3,100 2,140
Accumulated other comprehensive income .................................................... 688 80
--------- ---------
Total shareholders' equity ......................................................... 39,658 37,910
--------- ---------
Total liabilities and shareholders' equity ......................................... $ 423,887 $ 402,148
========= =========
See accompanying notes to unaudited consolidated financial statements.
3
COMMUNITY FIRST BANCORPORATION
Consolidated Statements of Income
(Unaudited)
Three Months Ended
March 31,
2008 2007
----- ----
(Dollars in thousands,
except per share)
Interest income
Loans, including fees ............................... $4,732 $3,978
Interest bearing deposits due from banks ............ 2 1
Securities
Taxable ........................................... 1,017 938
Tax-exempt ........................................ 206 187
Other investments ................................... 13 15
Federal funds sold .................................. 386 542
------ ------
Total interest income ........................... 6,356 5,661
------ ------
Interest expense
Time deposits $100M and over ........................ 1,153 918
Other deposits ...................................... 2,396 2,224
Short-term borrowings ............................... - 3
Long-term debt ...................................... 39 54
------ ------
Total interest expense .......................... 3,588 3,199
------ ------
Net interest income ...................................... 2,768 2,462
Provision for loan losses ................................ 130 -
------ ------
Net interest income after provision ...................... 2,638 2,462
------ ------
Other income
Service charges on deposit accounts ................. 360 334
ATM interchange and other fees ...................... 129 105
Credit life insurance commissions ................... 4 7
Increase in value of bank-owned life insurance ...... 93 -
Other income ........................................ 23 40
------ ------
Total other income .............................. 609 486
------ ------
Other expenses
Salaries and employee benefits ...................... 1,037 811
Net occupancy expense ............................... 119 88
Furniture and equipment expense ..................... 110 102
Amortization of computer software ................... 75 59
ATM interchange and related expenses ................ 110 70
Other expense ....................................... 436 404
------ ------
Total other expenses ............................ 1,887 1,534
------ ------
Income before income taxes ............................... 1,360 1,414
Income tax expense ....................................... 400 457
------ ------
Net income ............................................... $ 960 $ 957
====== ======
Per share*
Net income .......................................... $ 0.29 $ 0.31
Net income, assuming dilution ....................... 0.27 0.29
------
* Per share information has been retroactively adjusted to reflect a 5% stock
dividend effective December 20, 2007.
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, 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
========= ========= ========= ========= ========= =========
Balance, January 1, 2008 ............................ 3,324,105 $ 35,009 $ 681 $ 2,140 $ 80 $ 37,910
---------
Comprehensive income:
Net income ...................................... - - - 960 - 960
---------
Unrealized holding gains and losses
on available-for-sale securities
arising during the period, net of
income taxes of $340 .......................... - - - - 608 608
---------
Total other comprehensive income ............ 608
---------
Total comprehensive income ................ 1,568
---------
Exercise of employee stock options .................. 35,098 180 - - - 180
--------- --------- --------- --------- --------- ---------
Balance, March 31, 2008 ............................. 3,359,203 $ 35,189 $ 681 $ 3,100 $ 688 $ 39,658
========= ========= ========= ========= ========= =========
See accompanying notes to unaudited consolidated financial statements.
5
COMMUNITY FIRST BANCORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended
March 31,
2008 2007
---- ----
(Dollars in thousands)
Operating activities
Net income .............................................................................. $ 960 $ 957
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for loan losses ........................................................ 130 -
Depreciation ..................................................................... 112 88
Amortization of net loan fees and costs .......................................... (58) (72)
Securities accretion and premium amortization .................................... 6 27
Loss on sale of foreclosed assets ................................................ 6 -
Increase in cash surrender value of bank-owned life insurance .................... (93) -
(Increase) decrease in interest receivable ....................................... (13) 98
Increase in interest payable ..................................................... 442 317
(Increase) decrease in prepaid expenses and other assets ......................... (5) 251
Increase in other accrued expenses ............................................... 347 344
-------- --------
Net cash provided by operating activities .................................... 1,834 2,010
-------- --------
Investing activities
Purchases of available-for-sale securities .............................................. (22,296) (5,058)
Maturities, calls and paydowns of securities available-for-sale ......................... 14,627 9,669
Maturities, calls and paydowns of securities held-to-maturity ........................... 219 235
Purchases of other investments .......................................................... (87) -
Disposals of other investments .......................................................... - 5
Net increase in loans made to customers ................................................. (7,808) (9,060)
Purchases of premises and equipment ..................................................... (370) (55)
Proceeds of sale of foreclosed assets ................................................... 34 -
Investment in bank-owned life insurance ................................................. (1,000) -
-------- --------
Net cash used by investing activities ........................................ (16,681) (4,264)
-------- --------
Financing activities
Net increase in demand deposits, interest
bearing transaction accounts and savings accounts ................................... 5,619 4,366
Net increase in certificates of deposit and other
time deposits ....................................................................... 13,583 19,706
Decrease in short-term borrowings ....................................................... - (4,500)
Exercise of employee stock options ...................................................... 180 76
-------- --------
Net cash provided by financing activities .................................... 19,382 19,648
-------- --------
Increase in cash and cash equivalents ........................................................ 4,535 17,394
Cash and cash equivalents, beginning ......................................................... 34,673 31,145
-------- --------
Cash and cash equivalents, ending ............................................................ $ 39,208 $ 48,539
======== ========
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for
Interest, net of $15 capitalized during construction in 2007 ........................ $ 3,145 $ 2,882
Income taxes ........................................................................ - -
Noncash investing and financing activities:
Other comprehensive income .......................................................... 608 203
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, 2007 filed with the Securities and Exchange
Commission. Certain amounts in the 2007 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, 2008, there were $444,000 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 2007 per share
information has been retroactively adjusted to give effect to a 5% stock
dividend effective December 20, 2007. Net income per share and net income per
share, assuming dilution, were computed as follows:
(Unaudited)
Three Months Ended
March 31,
2008 2007
---- ----
(Dollars in thousands,
except per share amounts)
Net income per share, basic
Numerator - net income ........................................................... $ 960 $ 957
========== ==========
Denominator
Weighted average common shares issued and outstanding .......................... 3,340,304 3,117,791
========== ==========
Net income per share, basic ......................................... $ .29 $ .31
========== ==========
Net income per share, assuming dilution
Numerator - net income ........................................................... $ 960 $ 957
========== ==========
Denominator
Weighted average common shares issued and outstanding .......................... 3,340,304 3,117,791
Effect of dilutive stock options ............................................... 169,524 231,179
---------- ----------
Total shares ........................................................ 3,509,828 3,348,970
========== ==========
Net income per share, assuming dilution ............................. $ .27 $ .29
========== ==========
Stock-Based Compensation - As of March 31, 2008, 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-employee directors under the recognition and measurement principles of
7
Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based
Payment" using the modified prospective application method.
New Accounting Pronouncements - The Financial Accounting Standards Board ("the
FASB") issued Statement of Financial Accounting Standards No. 159 "The Fair
Value Option for Financial Assets and Financial Liabilities" ("SFAS No. 159"),
which was effective for the Company as of January 1, 2008. 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. The Company has
not elected to value any financial assets or liabilities under SFAS No. 159.
Therefore, the adoption of SFAS No. 159 had no effect on the Company's financial
statements.
In December 2007, the FASB issued Statement of Financial Accounting Standards
No. 160 "Noncontrolling Interests in Consolidated Financial Statements, an
amendment of ARB No. 51" ("SFAS No. 160"). SFAS No. 160 is effective for years
beginning after December 31, 2008, and is to be applied prospectively with
retrospective presentation and disclosure requirements for comparative financial
statements. Early adoption is prohibited. SFAS No. 160 seeks to improve the
relevance, comparability and transparency of financial information that a
reporting entity provides in its consolidated financial statements by separately
identifying and reporting several financial statement components into amounts
that are attributable to the reporting entity or that are attributable to
noncontrolling interests. SFAS No. 160 also specifies the conditions under which
an entity is required to deconsolidate its interest in a subsidiary. The Company
currently has no consolidated subsidiaries that are not wholly owned nor are any
transactions contemplated that would result in such a condition. Therefore, it
is expected that the adoption of SFAS No. 160 in January 2009 will have no
effect on the Company's consolidated financial statements.
Fair Value Measurements - The Company implemented Statement of Financial
Accounting Standards No. 157, "Fair Value Measurements," ("SFAS No. 157") as
required on January 1, 2008. SFAS No. 157 defines fair value as the price that
would be received to sell an asset or paid to transfer a liability in an orderly
fashion between market participants at the measurement date, and establishes a
framework for measuring fair value. It also establishes a three-level hierarchy
for fair value measurements based upon the transparency of inputs to the
valuation of an asset or liability as of the measurement date, eliminates the
consideration of large position discounts for financial instruments quoted in
active markets, requires consideration of the Company's creditworthiness when
valuing its liabilities, and expands disclosures about instruments measured at
fair value. The following is a summary of the measurement attributes applicable
to financial assets and liabilities that are measured at fair value on a
recurring basis:
Fair Value Measurement at Reporting Date Using
----------------------------------------------
Quoted Prices
in Active Significant
Markets for Other Significant
Identical Observable Unobservable
Assets Inputs Inputs
Description March 31, 2008 (Level 1) (Level 2) (Level 3)
----------- -------------- ---------- ---------- ---------
(Dollars in thousands)
Securities available-for-sale $ - $ 107,635 $ -
Pricing for the Company's securities available-for-sale is obtained from an
independent third-party that uses a process that may incorporate current market
prices, benchmark yields, broker/dealer quotes, issuer spreads, two-sided
markets, benchmark securities, bids, offers, other reference data and industry
and economic events that a market participant would be expected to use in
valuing the securities. Not all of the inputs listed apply to each individual
security at each measurement date. The independent third party assigns specific
securities into an "asset class" for the purpose of assigning the applicable
level of the fair value hierarchy used to value the securities. The techniques
used after adoption of SFAS No. 157 are consistent with the methods used
previously.
In February 2008, the Financial Accounting Standards Board Staff issued FASB
Staff Position No. FAS 157-2 ("FSP 157-2") which delays for one year the
effective date of the application of Statement of Financial Accounting Standards
No. 157 "Fair Value Measurements" ("SFAS No. 157") to nonfinancial assets and
liabilities, except for items that are recognized or disclosed at fair value in
the financial statements on a recurring basis (at least annually). In accordance
with FSP 157-2, the Company has only partially applied SFAS No. 157. There are
currently no major categories of assets or liabilities disclosed at fair value
in the financial statements for which the Company has not applied the provisions
of SFAS No. 157.
No cumulative effect adjustments were required upon initial application of SFAS
No. 157. Available-for-sale securities continue to be measured at fair value
with unrealized gains and losses recorded in other comprehensive income.
8
CAUTIONARY NOTICE WITH RESPECT TO FORWARD-LOOKING STATEMENTS
This report contains "forward-looking statements" within the meaning of
the securities laws. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements. In order to comply with
the terms of the safe harbor, the Company notes that a variety of factors could
cause the Company's actual results and experience to differ materially from the
anticipated results or other expectations expressed in the Company's
forwarding-looking statements.
All statements that are not historical facts are statements that could
be "forward-looking statements." You can identify these forward-looking
statements through the use of words such as "may," "will," "should," "could,"
"would," "expect," "anticipate," "assume," indicate," "contemplate," "seek,"
"plan," "predict," "target," "potential," "believe," "intend," "estimate,"
"project," "continue," or other similar words. Forward-looking statements
include, but are not limited to, statements regarding the Company's future
business prospects, revenues, working capital, liquidity, capital needs,
interest costs, income, business operations and proposed services.
These forward-looking statements are based on current expectations,
estimates and projections about the banking industry, management's beliefs, and
assumptions made by management. Such information includes, without limitation,
discussions as to estimates, expectations, beliefs, plans, strategies, and
objectives concerning future financial and operating performance. These
statements are not guarantees of future performance and are subject to risks,
uncertainties and assumptions that are difficult to predict. Therefore, actual
results may differ materially from those expressed or forecasted in such
forward-looking statements. The risks and uncertainties include, but are not
limited to:
o future economic and business conditions;
o lack of sustained growth in the economies of the Company's market
areas;
o government monetary and fiscal policies;
o the effects of changes in interest rates on the levels,
composition and costs of deposits, loan demand, and the values of
loan collateral, securities, and interest sensitive assets and
liabilities;
o the effects of competition from a wide variety of local,
regional, national and other providers of financial, investment,
and insurance services, as well as competitors that offer banking
products and services by mail, telephone, computer and/or the
Internet;
o credit risks;
o the failure of assumptions underlying the establishment of the
allowance for loan losses and other estimates, including the
value of collateral securing loans;
o the risks of opening new offices, including, without limitation,
the related costs and time of building customer relationships and
integrating operations as part of these endeavors and the failure
to achieve expected gains, revenue growth and/or expense savings
from such endeavors;
o changes in laws and regulations, including tax, banking and
securities laws and regulations;
o changes in accounting policies, rules and practices;
o changes in technology or products may be more difficult or
costly, or less effective, than anticipated;
o the effects of war or other conflicts, acts of terrorism or other
catastrophic events that may affect general economic conditions
and economic confidence; and
o other factors and information described in this report and in any
of the other reports that we file with the Securities and
Exchange Commission under the Securities Exchange Act of 1934.
All forward-looking statements are expressly qualified in their
entirety by this cautionary notice. The Company has no obligation, and does not
undertake, to update, revise or correct any of the forward-looking statements
after the date of this report. The Company has expressed its expectations,
beliefs and projections in good faith and believes they have a reasonable basis.
However, there is no assurance that these expectations, beliefs or projections
will result or be achieved or accomplished.
Item 2. - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Changes in Financial Condition
During the first three months of 2008, interest bearing deposits
increased by $21,024,000, or 6.7%. Certificates of deposit issued in
denominations of $100,000 or more grew by $10,855,000, or 11.2% during the
period, primarily due to activity generated by local government bodies. These
funds were used primarily to fund growth in securities available-for-sale. Loan
9
growth was funded primarily by increases in non-governmental deposits. 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 $960,000 or $.29 per
share for the first quarter of 2008 compared with $957,000, or $.31 per share
for the first quarter of 2007. Net income per share, assuming dilution was $.27
for the 2008 period and $.29 for the 2007 period. Net income per share amounts
for 2007 have been retroactively adjusted to reflect a five percent stock
dividend effective December 20, 2007.
Summary Income Statement
------------------------
(Dollars in thousands)
For the Three Months Ended March 31, 2008 2007 Dollar Change Percentage Change
---- ---- ------------- -----------------
Interest income .................................... $6,356 $5,661 $ 695 12.3%
Interest expense ................................... 3,588 3,199 389 12.2%
------ ------ -----
Net interest income ................................ 2,768 2,462 306 12.4%
Provision for loan losses .......................... 130 - 130 NA
Noninterest income ................................. 609 486 123 25.3%
Noninterest expenses ............................... 1,887 1,534 353 23.0%
Income tax expense ................................. 400 457 (57) -12.5%
------ ------ -----
Net income ......................................... $ 960 $ 957 $ 3 0.3%
====== ====== =====
Net Interest Income
Net interest income is the principal source of the Company's earnings.
For the first quarter of 2008, net interest income totaled $2,768,000, an
increase of $306,000 or 12.4% over the amount for the same period of 2007. The
yield on interest earning assets decreased to 6.26% for the 2008 period,
compared with 6.39% for the 2007 period and the average rates paid for interest
bearing liabilities were 4.09% and 4.34%, respectively. Accordingly, the average
interest rate spread for the 2008 period was 12 basis points higher than for the
2007 period. Net yield on earning assets decreased, however, in the 2008 period
to 2.73% from 2.78% for the 2007 period because interest bearing liabilities
grew at a higher rate than earning assets.
Average loans in the 2008 period were $250,255,000, an increase of
$42,257,000, or 20.3%, over the amount for the same period of 2007. The higher
loan volume was primarily responsible for the increase in interest income.
Likewise, higher average amounts of time deposits were responsible for the
higher interest expense in 2008.
During the three months ended March 31, 2008, the Federal Reserve Board
reduced its federal funds target and discount window borrowing rates
precipitously. In addition to lowering those interest rates, the Federal Reserve
Board also prevented the collapse of a major brokerage firm by facilitating its
acquisition by a multinational bank, opened its discount window to non-bank
financial institutions, and initiated a program whereby it lends US Treasury
securities and accepts other lesser-quality securities as collateral. All of
these measures were undertaken in an effort to overcome the illiquidity of
certain securities and to ensure that credit is available for new investments.
In response to the actions of the Federal Reserve Board, overall market
interest rates declined during the first quarter of 2008. The Company lowered
the rates offered for deposits and lower rates were accepted on investment
securities purchased during the period and on loans originated during the
period. In addition, many of the Company's pre-existing loans are variable rate
loans with interest rates indexed to the prime rate. Changes in the prime rate
occur almost simultaneously with changes made by the Federal Reserve Board.
10
Average Balances, Yields and Rates
Three Months Ended March 31,
----------------------------
2008 2007
---- ----
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 .... $ 415 $ 2 1.94% $ 65 $ 1 6.24%
Securities
Taxable ................................ 88,070 1,017 4.64% 88,406 938 4.30%
Tax exempt (2) ......................... 20,613 206 4.02% 19,692 187 3.85%
--------- ------- --------- -------
Total investment securities ........ 108,683 1,223 4.53% 108,098 1,125 4.22%
Other investments ........................... 846 13 6.18% 980 15 6.21%
Federal funds sold .......................... 48,050 386 3.23% 42,231 542 5.20%
Loans (2) (3) ............................... 250,255 4,732 7.61% 207,998 3,978 7.76%
--------- ------- --------- -------
Total interest earning assets ...... 408,249 6,356 6.26% 359,372 5,661 6.39%
Cash and due from banks ..................... 8,250 7,684
Allowance for loan losses ................... (2,581) (2,228)
Unrealized securities gains (losses) ........ 778 (1,216)
Premises and equipment ...................... 8,842 7,907
Other assets ................................ 12,196 3,788
--------- ---------
Total assets ....................... $ 435,734 $ 375,307
========= =========
Liabilities and shareholders' equity
Interest bearing deposits
Interest bearing transaction accounts .. $ 59,745 $ 335 2.26% $ 55,233 $ 433 3.18%
Savings ................................ 42,225 209 1.99% 40,297 353 3.55%
Time deposits $100M and over ........... 103,047 1,153 4.50% 80,238 918 4.64%
Other time deposits .................... 143,297 1,852 5.20% 117,466 1,438 4.96%
--------- ------- --------- -------
Total interest bearing
deposits ......................... 348,314 3,549 4.10% 293,234 3,142 4.35%
Short-term borrowings ....................... - - 0.00% 50 3 24.33%
Long-term debt .............................. 4,500 39 3.49% 5,500 54 3.98%
--------- ------- --------- -------
Total interest bearing
liabilities ...................... 352,814 3,588 4.09% 298,784 3,199 4.34%
Noninterest bearing demand deposits ......... 39,777 39,691
Other liabilities ........................... 4,327 3,178
Shareholders' equity ........................ 38,816 33,654
--------- ---------
Total liabilities and shareholders'
equity ................................. $ 435,734 $ 375,307
========= =========
Interest rate spread ........................ 2.17% 2.05%
Net interest income and net yield
on earning assets ...................... $ 2,768 2.73% $ 2,462 2.78%
Interest free funds supporting earning
assets ................................. $ 55,435 $ 60,588
-----------------------------------------
(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.
11
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.
Provision and Allowance for Loan Losses
The Company provided $130,000 for loan losses in the first quarter of
2008. No provision for loan losses was made during the 2007 first quarter. As of
March 31, 2008, the allowance for loan losses was 1.03% of loans compared with
1.05% of loans at December 31, 2007. During the 2008 three month period, net
charge-offs totaled $106,000, compared with $45,000 in net charge offs during
the same period of 2007. As of March 31, 2008, nonaccrual loans totaled $444,000
and there were no loans 90 days or more past due and still accruing interest. 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. The activity in the allowance for
loan losses is summarized in the table below:
Three Months Three Months
Ended Year Ended Ended
March 31, December 31, March 31,
2008 2007 2007
---- ---- ----
(Dollars in thousands)
Allowance at beginning of period ................................. $ 2,574 $ 2,242 $ 2,242
Provision for loan losses ........................................ 130 594 -
Net charge-offs .................................................. (106) (262) (45)
--------- --------- ---------
Allowance at end of period ....................................... $ 2,598 $ 2,574 $ 2,197
========= ========= =========
Allowance as a percentage of loans outstanding
at period end .................................................. 1.03% 1.05% 1.04%
Loans at end of period ........................................... $ 251,891 $ 244,131 $ 212,053
========= ========= =========
12
Non-Performing and Potential Problem Loans
90 Days or
More Past Due Total Percentage Percentage
Non-accrual and Still Non-Performing of Total Potential of Total
Loans Accruing Loans Loans Problem Loans Loans
----- -------- ----- ----- ------------- -----
(Dollars in thousands)
January 1, 2007 ...................... $ 50 $ - $ 50 0.02% $ 3,176 1.56%
Net change ........................... 143 - 143 (151)
------- ---- ------- -------
March 31, 2007 ....................... 193 - 193 0.09% 3,025 1.43%
Net change ........................... 219 - 219 97
------- ---- ------- -------
June 30, 2007 ........................ 412 - 412 0.18% 3,122 1.38%
Net change ........................... 14 - 14 106
------- ---- ------- -------
September 30, 2007 ................... 426 - 426 0.18% 3,228 1.36%
Net change ........................... 199 - 199 (140)
------- ---- ------- -------
December 31, 2007 .................... 625 - 625 0.26% 3,088 1.26%
Net change ........................... (181) - (181) 962
------- ---- ------- -------
March 31, 2008 ....................... $ 444 $ - $ 444 0.18% $ 4,050 1.61%
======= ==== ======= =======
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, 2008, approximately 81.7% of the dollar amount of
potential problem loans was secured by real estate, 13.7% was secured by
vehicles and other collateral, and approximately 4.6% represented unsecured
loans.
Management believes that the economies of its market areas are strong.
However, continuing increases in prices for fuel and food, declining values of
homes and other real properties, declining demand for products manufactured
locally, and other events could have an adverse effect on those areas and
potentially lead to a deterioration of the abilities of the Company's loan
customers to repay their debts, resulting in higher loan losses.
Noninterest Income
Noninterest income totaled $609,000 for the first quarter of 2008,
compared with $486,000 for the first quarter of 2007. Service charges on deposit
accounts in the 2008 period were $360,000 representing an increase of $26,000
over the prior year period. ATM interchange and other fees for the 2008 period
increased by $24,000 over the 2007 amount. Increases in the cash surrender value
of bank-owned life insurance assets totaled $93,000 in the 2008 period. There
was no such activity in the same 2007 period.
Noninterest Expenses
Noninterest expenses totaled $1,887,000 for the first quarter of 2008,
compared with $1,534,000 for the first quarter of 2007, representing an increase
of $353,000 or 23.0%. Salaries and employee benefits increased by $226,000, or
27.9%, to $1,037,000. Amounts accrued in recognition of certain deferred
compensation and other benefits totaled $139,000 in the 2008 period; no such
expenses were recorded in the same 2007 period. Normal increases in employees'
salaries and the opening of the new Highway 81 office in the fourth quarter of
2007 also contributed to the higher amounts of salaries and benefits.
Occupancy and furniture and equipment expenses for the first quarter of
2008 increased by $39,000 compared with the 2007 period, primarily due to the
opening of the Company's new Highway 81, Anderson, office in the fourth quarter
of 2007.
Income tax expense for the first quarter of 2008 decreased by $57,000
from the amount of the same period of 2007 due to lower net income before income
taxes and higher amounts of tax-exempt investment income.
13
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
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, 2008, the ratio of loans to total deposits was 67.2%,
compared with 68.6% as of December 31, 2007. Total deposits as of March 31, 2008
were $375,069,000, an increase of $19,202,000 or 5.4% over the amount as of
December 31, 2007. Management believes that the Company's liquidity sources are
adequate to meet its operating needs.
Capital Resources
The Company's capital base increased by $1,748,000 since December 31,
2007 as the result of net income of $960,000 for the first three months of 2008,
plus a $608,000 change in unrealized gains and losses on available-for-sale
securities, net of deferred income tax effects, and $180,000 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, 2008 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 13.8% 14.7% 9.0%
Community First Bank 13.1% 14.0% 8.6%
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.
14
Following are the off-balance-sheet financial instruments whose contract amounts
represent credit risk:
March 31, 2008
--------------
(Dollars in
thousands)
Loan commitments .................................... $ 32,867
Standby letters of credit ........................... 1,064
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, 2008.
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
Not required for smaller reporting companies.
15
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
16
SIGNATURE
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 FIRST BANCORPORATION
May 13, 2008 /s/ Frederick D. Shepherd, Jr.
----------------- --------------------------------------------
Date Frederick D. Shepherd, Jr., Chief Executive
Officer and Chief Financial Officer
17
EXHIBIT INDEX
31. Rule 13a-14(a)/15d-14(a) Certifications
32. Certifications Pursuant to 18 U.S.C. Section 1350
18