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 June 30, 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, 2,972,763 Shares Outstanding on July 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 ...................................... 17
Item 4T. Controls and Procedures ......................................................................... 17
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders ............................................. 18
Item 6. Exhibits ........................................................................................ 18
SIGNATURE ......................................................................................................... 19
2
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
COMMUNITY FIRST BANCORPORATION
Consolidated Balance Sheets
(Unaudited)
June 30, December 31,
2007 2006
----- ----
(Dollars in thousands)
Assets
Cash and due from banks ................................................................... $ 10,413 $ 6,952
Interest bearing balances due from banks .................................................. 180 67
Federal funds sold ........................................................................ 11,457 24,126
--------- ---------
Cash and cash equivalents ............................................................. 22,050 31,145
Securities available-for-sale ............................................................. 104,659 102,487
Securities held-to-maturity (fair value $5,875 for 2007 and $6,530 for 2006) .............. 6,099 6,595
Other investments ......................................................................... 885 980
Loans ..................................................................................... 225,971 202,966
Allowance for loan losses ............................................................. (2,279) (2,242)
--------- ---------
Loans - net ........................................................................ 223,692 200,724
Premises and equipment - net .............................................................. 8,066 7,937
Accrued interest receivable ............................................................... 2,400 2,182
Other assets .............................................................................. 2,317 1,859
--------- ---------
Total assets ....................................................................... $ 370,168 $ 353,909
========= =========
Liabilities
Deposits
Noninterest bearing ................................................................... $ 39,752 $ 40,576
Interest bearing ...................................................................... 288,433 267,381
--------- ---------
Total deposits ..................................................................... 328,185 307,957
Short-term borrowings ..................................................................... - 4,500
Long-term debt ............................................................................ 4,500 5,500
Accrued interest payable .................................................................. 2,897 2,703
Other liabilities ......................................................................... 67 34
--------- ---------
Total liabilities .................................................................. 335,649 320,694
--------- ---------
Shareholders' equity
Common stock - no par value; 10,000,000 shares authorized; issued and
outstanding - 2,972,563 for 2007 and 2,958,558 for 2006 ............................... 30,137 30,061
Additional paid-in capital ................................................................ 593 593
Retained earnings ......................................................................... 5,181 3,285
Accumulated other comprehensive income (loss) ............................................. (1,392) (724)
--------- ---------
Total shareholders' equity ......................................................... 34,519 33,215
--------- ---------
Total liabilities and shareholders' equity ......................................... $ 370,168 $ 353,909
========= =========
See accompanying notes to unaudited consolidated financial statements.
3
COMMUNITY FIRST BANCORPORATION
Consolidated Statements of Income
(Unaudited)
Period Ended June 30,
---------------------
Three Months Six Months
------------ ----------
2007 2006 2007 2006
---- ---- ---- ----
(Dollars in thousands, except per share)
Interest income
Loans, including fees ..................................... $ 4,275 $ 3,343 $ 8,253 $ 6,433
Interest bearing balances due from banks .................. - 2 1 4
Securities
Taxable ................................................... 994 957 1,932 1,888
Tax-exempt ................................................ 217 158 404 278
Other investments ......................................... 14 13 29 24
Federal funds sold ........................................ 320 330 862 823
------- ------- ------- -------
Total interest income ................................. 5,820 4,803 11,481 9,450
------- ------- ------- -------
Interest expense
Time deposits $100M and over .............................. 945 733 1,863 1,465
Other deposits ............................................ 2,211 1,757 4,435 3,291
Short-term borrowings ..................................... - - 3 2
Long-term debt ............................................ 55 61 109 123
------- ------- ------- -------
Total interest expense ................................ 3,211 2,551 6,410 4,881
------- ------- ------- -------
Net interest income ............................................ 2,609 2,252 5,071 4,569
Provision for loan losses ...................................... 120 25 120 50
------- ------- ------- -------
Net interest income after provision ............................ 2,489 2,227 4,951 4,519
------- ------- ------- -------
Other income
Service charges on deposit accounts ....................... 343 382 677 746
ATM interchange and other fees ............................ 116 96 221 182
Credit life insurance commissions ......................... 9 12 16 22
Other income .............................................. 34 49 74 128
------- ------- ------- -------
Total other income .................................... 502 539 988 1,078
------- ------- ------- -------
Other expenses
Salaries and employee benefits ............................ 903 919 1,714 1,648
Net occupancy expense ..................................... 114 79 202 148
Furniture and equipment expense ........................... 108 100 210 204
Amortization of computer software ......................... 58 73 117 133
ATM interchange and related expenses ...................... 79 64 149 142
Directors' fees ........................................... 20 65 47 124
Other expense ............................................. 360 376 737 713
------- ------- ------- -------
Total other expenses .................................. 1,642 1,676 3,176 3,112
------- ------- ------- -------
Income before income taxes ..................................... 1,349 1,090 2,763 2,485
Income tax expense ............................................. 410 348 867 832
------- ------- ------- -------
Net income ..................................................... $ 939 $ 742 $ 1,896 $ 1,653
======= ======= ======= =======
Per share*
Net income ................................................ $ 0.32 $ 0.25 $ 0.64 $ 0.56
Net income, assuming dilution ............................. 0.30 0.24 0.60 0.53
* 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)
Accumulated
Common Stock Additional Other
Number of Paid-in Retained 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 .................................... - - - 1,653 - 1,653
----------
Unrealized holding gains and losses
on available-for-sale securities
arising during the period, net of
income taxes of $255 ........................ - - - - (455) (455)
----------
Total other comprehensive income .......... (455)
----------
Total comprehensive income .............. 1,198
----------
Share-based compensation, net of income
taxes of $23 .................................. - - 100 - - 100
---------- ---------- ---------- ---------- ---------- ----------
Balance, June 30, 2006 ............................ 2,798,409 $ 26,956 $ 100 $ 4,949 $ (1,852) $ 30,153
========== ========== ========== ========== ========== ==========
Balance, January 1, 2007 .......................... 2,958,558 $ 30,061 $ 593 $ 3,285 $ (724) $ 33,215
----------
Comprehensive income:
Net income .................................... - - - 1,896 - 1,896
----------
Unrealized holding gains and losses
on available-for-sale securities
arising during the period, net of
income taxes of $374 ........................ - - - - (668) (668)
----------
Total other comprehensive income .......... (668)
----------
Total comprehensive income .............. 1,228
----------
Exercise of employee stock options ................ 14,005 76 - - - 76
---------- ---------- ---------- ---------- ---------- ----------
Balance, June 30, 2007 ............................ 2,972,563 $ 30,137 $ 593 $ 5,181 $ (1,392) $ 34,519
========== ========== ========== ========== ========== ==========
See accompanying notes to unaudited consolidated financial statements.
5
COMMUNITY FIRST BANCORPORATION
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30,
--------
2007 2006
----- ----
(Dollars in thousands)
Operating activities
Net income .............................................................................. $ 1,896 $ 1,653
Adjustments to reconcile net income to net
cash provided by operating activities
Provision for loan losses ........................................................ 120 50
Depreciation ..................................................................... 200 172
Amortization of net loan fees and costs .......................................... (92) (80)
Securities accretion and premium amortization .................................... 47 77
Gain on sale of foreclosed assets ................................................ - (31)
Increase in interest receivable .................................................. (218) (256)
Increase in interest payable ..................................................... 194 336
Increase in prepaid expenses and other assets .................................... (84) (91)
Increase in other accrued expenses ............................................... 33 3
Share-based compensation ......................................................... - 100
-------- --------
Net cash provided by operating activities .................................... 2,096 1,933
-------- --------
Investing activities
Purchases of available-for-sale securities .............................................. (17,448) (16,100)
Maturities, calls and paydowns of securities available-for-sale ......................... 14,183 11,061
Maturities, calls and paydowns of securities held-to-maturity ........................... 500 574
Proceeds from sales of other investments ................................................ 95 -
Purchases of other investments .......................................................... - (32)
Net increase in loans made to customers ................................................. (22,996) (16,699)
Purchases of premises and equipment ..................................................... (329) (1,146)
Proceeds of sale of foreclosed assets ................................................... - 168
-------- --------
Net cash used by investing activities ........................................ (25,995) (22,174)
-------- --------
Financing activities
Net (decrease) increase in demand deposits, interest
bearing transaction accounts and savings accounts ................................... (5,377) 14,160
Net increase in certificates of deposit and other
time deposits ....................................................................... 25,605 6,253
Net decrease in short-term borrowings ................................................... (4,500) (3,500)
Repayments of long-term debt ............................................................ (1,000) (1,000)
Exercise of employee stock options ...................................................... 76 -
-------- --------
Net cash provided by financing activities .................................... 14,804 15,913
-------- --------
Decrease in cash and cash equivalents ........................................................ (9,095) (4,328)
Cash and cash equivalents, beginning ......................................................... 31,145 32,450
-------- --------
Cash and cash equivalents, ending ............................................................ $ 22,050 $ 28,122
======== ========
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for
Interest, net of $18 capitalized during construction during 2006 .................... $ 6,216 $ 4,545
Income taxes ........................................................................ 898 895
Noncash investing and financing activities:
Other comprehensive income (loss) ................................................... (668) (455)
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 June 30, 2007, there were $412,000 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)
-----------
Period Ended June 30,
Three Months Six Months
------------ ----------
2007 2006 2007 2006
---- ---- ---- ----
(Dollars in thousands, except per share amounts)
Net income per share, basic
Numerator - net income ............................... $ 939 $ 742 $ 1,896 $ 1,653
========== ========== ========== ==========
Denominator
Weighted average common shares
issued and outstanding ............................. 2,972,515 2,938,329 2,970,929 2,938,329
========== ========== ========== ==========
Net income per share, basic ........................ $ .32 $ .25 $ .64 $ .56
========== ========== ========== ==========
Net income per share, assuming dilution
Numerator - net income ............................... $ 939 $ 742 $ 1,896 $ 1,653
========== ========== ========== ==========
Denominator
Weighted average common shares
issued and outstanding ............................. 2,972,515 2,938,329 2,970,929 2,938,329
Effect of dilutive stock options ..................... 204,437 216,601 209,216 207,812
---------- ---------- ---------- ----------
Total shares ............................ 3,176,952 3,154,930 3,180,145 3,146,141
========== ========== ========== ==========
Net income per share, assuming dilution ............ $ .30 $ .24 $ .60 $ .53
========== ========== ========== ==========
Stock-Based Compensation - As of June 30, 2007, the Company has 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. Total
share-based compensation expenses included in salaries and employee benefits and
directors fees were $40,000 and $38,000, respectively, for the three month
period, and $60,000 and $63,000, respectively, for the six month period ended
June 30, 2006. During the fourth quarter of 2006, the Company accelerated the
7
vesting of all options then outstanding and there have been no grants of options
during 2007. Consequently, no share-based compensation expense is recognized in
the 2007 period.
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 three months ended June 30, 2007, loans grew by $13,918,000,
or 6.6%, and securities available-for-sale grew by $6,494,000, or 6.6%.
Conversely, total deposits decreased by $3,844,000, or 1.2%, during the 2007
second quarter. Interest-bearing deposits decreased by $3,091,000 during the
2007 second quarter. These changes were funded primarily by reducing the amount
of federal funds sold by $28,488,000 during the quarter.
During the first six months of 2007, federal funds sold decreased by
$12,669,000, or 52.5%, and interest bearing deposits increased by $21,052,000,
or 7.9%. These funds were used to repay short-term borrowings of $4,500,000 and
long-term debt of $1,000,000, to fund growth in loans, and to purchase
securities. Loans increased by $23,005,000 or 11.3% and securities
available-for-sale increased by $2,172,000 or 2.1%.
The Company believes that its liquidity position continues to provide
it with sufficient flexibility to fund loan requests or make investments in
securities at attractive yields, and to meet normal demands for deposit
withdrawals by its customers. Management also believes that the current balance
sheet positions maintain the Company's exposures to changes in interest rates at
acceptable levels.
8
Results of Operations
Three Months Ended June 30, 2007 and 2006
The Company recorded consolidated net income of $939,000 or $.32 per
share for the second quarter of 2007. These results are more than net income of
$742,000 and earnings per share of $.25 for the second quarter of 2006. Net
income per share, assuming dilution was $.30 for the 2007 quarter and $.24 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.
Net interest income for the 2007 second quarter was $357,000, or 15.9%,
more than for the 2006 second quarter. Interest income for the 2007 second
quarter increased primarily because of larger amounts of loans and higher rates
earned on substantially all categories of earning assets. Interest expenses for
the 2007 quarter were higher than the same period of 2006 primarily due to
higher amounts of certificates of deposits and higher rates paid, especially for
time deposits.
Noninterest income for the second quarter of 2007 was adversely
affected primarily by a decrease in service charges on deposit accounts due to
declining demand for an overdraft protection product that was introduced a few
years ago. Noninterest expense for the 2007 second quarter decreased somewhat
from the amounts recorded for the same 2006 period, primarily as a result of
lower employee benefits and directors fees. Employee benefits and directors'
fees for the 2006 three month period included approximately $78,000 representing
the effect of the adoption of SFAS 123(R) using the modified prospective method.
No expenses were incurred for share-based compensation in the 2007 period.
Summary Income Statement
------------------------
(Dollars in thousands)
For the Three Months Ended June 30, 2007 2006 Dollar Change Percentage Change
----------------------------------- ---- ---- ------------- -----------------
Interest income .................................... $ 5,820 $ 4,803 $ 1,017 21.2%
Interest expense ................................... 3,211 2,551 660 25.9%
------- ------- ------
Net interest income ................................ 2,609 2,252 357 15.9%
Provision for loan losses .......................... 120 25 95 380.0%
Noninterest income ................................. 502 539 (37) -6.9%
Noninterest expenses ............................... 1,642 1,676 (34) -2.0%
Income tax expense ................................. 410 348 62 17.8%
------- ------- -------
Net income ......................................... $ 939 $ 742 $ 197 26.5%
======= ======= =======
Six Months Ended June 30, 2007 and 2006
The Company recorded consolidated net income of $1,896,000 or $.64 per
share, for the first half of 2007, compared with $1,653,000, or earnings per
share of $.56, for the same period of 2006. Net income per share, assuming
dilution was $.60 for the 2007 six months and $.53 for the same period of 2006.
Net income per share amounts for 2006 have been retroactively adjusted to
reflect a five percent stock dividend effective December 18, 2006.
Net interest income for the first six months of 2007 increased by
$502,000, or 11.0%, over the amount recorded for the same period of 2006.
Increases in the amounts of loans outstanding and higher yields on earning
assets resulted in interest income increasing more than interest expenses.
Increases in interest expense were caused by increases in interest rates paid,
primarily for deposits, and higher amounts of interest bearing deposits,
especially time deposits.
Noninterest income for the first six months of 2007 decreased by
$90,000 as a result of lower amounts of service charges on deposit accounts as
discussed previously and a decrease in income from mortgage brokerage
operations. In addition, during the 2006 six-month period, the Company realized
a gain of $31,000 on the sale of foreclosed assets. No such activity was
recorded in the 2007 period. Noninterest expenses for the 2007 six-month period
were only slightly higher than for the 2006 period. During the second quarter of
2006, the Company opened a new banking office in Seneca, SC. The 2007 amounts of
salaries and benefits, occupancy expenses and similar expenses reflect such
expenses for the entire six months, while such expenses were incurred for only a
portion of the 2006 period.
The results for the 2006 six-month period reflect the effects of
adopting SFAS 123(R). Employee benefits and directors' fees for the 2006 six
month period include approximately $123,000 representing the effect of the
adoption of SFAS 123(R) using the modified prospective method.
9
Summary Income Statement
------------------------
(Dollars in thousands)
For the Six Months Ended June 30, 2007 2006 Dollar Change Percentage Change
--------------------------------- ---- ---- ------------- -----------------
Interest income .................................... $11,481 $ 9,450 $ 2,031 21.5%
Interest expense ................................... 6,410 4,881 1,529 31.3%
------- ------- ------
Net interest income ................................ 5,071 4,569 502 11.0%
Provision for loan losses .......................... 120 50 70 140.0%
Noninterest income ................................. 988 1,078 (90) -8.3%
Noninterest expenses ............................... 3,176 3,112 64 2.1%
Income tax expense ................................. 867 832 35 4.2%
------- ------- -------
Net income ......................................... $ 1,896 $ 1,653 $ 243 14.7%
======= ======= =======
Net Interest Income
Net interest income is the principal source of the Company's earnings.
During the second quarter of 2006, the Company offered above-market promotional
interest rates on certain deposit products in conjunction with the opening of a
new retail banking office in Seneca, SC. These promotional rates significantly
increased the Company's interest expense during that period. The promotional
program ended during the third quarter of 2006. Competition for deposits in the
Company's market area is strong and the Company strives to differentiate itself
from its competitors in several ways. While the Company continues to emphasize
providing a high level of personal service as a differentiating characteristic,
financial incentives must also be offered. Therefore, management prices its
deposit products competitively.
Three Months Ended June 30, 2007 and 2006
The average yield on interest earning assets increased to 6.59% for the
2007 three-month period, compared with 5.94% for the 2006 period. Yields on all
significant categories of earning assets were higher in the 2007 period.
Similarly, interest rates paid for deposits and borrowings were higher in the
2007 period. The average rate paid for interest-bearing liabilities during the
2007 three-month period was 4.39%, compared with 3.84% in the same period of
2006. Accordingly, the average interest rate spread for the 2007 period was 10
basis points higher than for the 2006 period.
10
Average Balances, Yields and Rates
Three Months Ended June 30,
---------------------------
2007 2006
---- ----
Interest Interest
Average Income/ Yields/ Average Income/ Yields/
Balances Expense Rates (1) Balances Expense Rates (1)
-------- ------- --------- -------- ------- ---------
(Dollars in thousands)
Assets
Interest-bearing balances due from banks .............. $ 130 $ - 0.00% $ 92 $ 2 8.72%
Securities
Taxable ......................................... 91,844 994 4.34% 99,894 957 3.84%
Tax exempt (2) .................................. 19,499 217 4.46% 16,283 158 3.89%
---------- ------- --------- -------
Total investment securities ................ 111,343 1,211 4.36% 116,177 1,115 3.85%
Other investments ..................................... 890 14 6.31% 980 13 5.32%
Federal funds sold .................................... 23,533 320 5.45% 27,163 330 4.87%
Loans (2) (3) (4) ..................................... 218,074 4,275 7.86% 179,896 3,343 7.45%
---------- ------- --------- -------
Total interest earning assets .............. 353,970 5,820 6.59% 324,308 4,803 5.94%
Cash and due from banks ............................... 8,374 6,615
Allowance for loan losses ............................. (2,228) (2,266)
Valuation allowance - available-for-sale securities ... (1,023) (2,891)
Premises and equipment ................................ 8,007 7,507
Other assets .......................................... 3,640 3,988
---------- ----------
Total assets ............................... $ 370,740 $ 337,261
========== =========
Liabilities and shareholders' equity
Interest bearing deposits
Interest bearing transaction accounts ........... $ 59,327 $ 483 3.27% $ 44,578 $ 356 3.20%
Savings ......................................... 25,715 170 2.65% 28,053 185 2.65%
Time deposits $100M and over .................... 80,644 945 4.70% 73,060 733 4.02%
Other time deposits ............................. 122,491 1,558 5.10% 114,273 1,216 4.27%
---------- ------- --------- -------
Total interest bearing deposits ............ 288,177 3,156 4.39% 259,964 2,490 3.84%
Long-term debt ........................................ 5,368 55 4.11% 6,335 61 3.86%
---------- ------- --------- -------
Total interest bearing liabilities ......... 293,545 3,211 4.39% 266,299 2,551 3.84%
Noninterest bearing demand deposits ................... 39,295 38,705
Other liabilities ..................................... 3,181 2,546
Shareholders' equity .................................. 34,719 29,711
---------- ---------
Total liabilities and shareholders' equity . $ 370,740 $ 337,261
Interest rate spread 2.20% 2.10%
Net interest income and net yield on earning assets ... $ 2,609 2.96% $ 2,252 2.79%
Interest free funds supporting earning assets ......... $ 60,425 $ 58,009
-----------------------------------------
(1) Yields and rates are annualized
(2) Yields on tax exempt instruments have not been adjusted to a tax-equivalent
basis.
(3) Nonaccrual loans are included in the average loan balances and income on
such loans is recognized on a cash basis.
(4) Includes immaterial amounts of loan fees.
11
Six Months Ended June 30, 2007 and 2006
For the first half of 2007, the average yield on interest earning
assets was 6.49%, compared with 5.82% for the 2006 period. Yields were higher on
substantially all types of earning assets in the 2007 period. Loan yields were
higher because a significant portion of the Company's loan portfolio consists of
variable rate instruments. Such loans, as offered by the Company, do not
normally subject the borrower to the risk of negative amortization, nor do the
loans involve the use of "teaser" rates or impose onerous fees or other terms
that would discourage borrowers from refinancing to a lower cost product or one
with a fixed rate. Yields earned on securities increased due to changes in the
composition of the securities portfolio brought about by reinvesting the
proceeds obtained from maturities, calls and paydowns of securities and the
investment of other funds, such as deposits, obtained currently.
Average rates paid on interest-bearing liabilities were higher in the
2007 period, as well, at 4.36% compared with 3.63% in the 2006 six-month period.
General increases in interest rates and competitive factors were primary causes
of the increase in rates paid.
12
Average Balances, Yields and Rates
Six Months Ended June 30,
-------------------------
2007 2006
---- ----
Interest Interest
Average Income/ Yields/ Average Income/ Yields/
Balances Expense Rates (1) Balances Expense Rates (1)
-------- ------- --------- -------- ------- ---------
(Dollars in thousands)
Assets
Interest-bearing balances due from banks ................ $ 98 $ 1 2.06% $ 132 $ 4 6.11%
Securities
Taxable ........................................... 90,135 1,932 4.32% 100,649 1,888 3.78%
Tax exempt (2) .................................... 19,595 404 4.16% 14,274 278 3.93%
---------- ------- --------- -------
Total investment securities .................. 109,730 2,336 4.29% 114,923 2,166 3.80%
Other investments ....................................... 935 29 6.25% 964 24 5.02%
Federal funds sold ...................................... 32,830 862 5.29% 36,162 823 4.59%
Loans (2) (3) (4) ....................................... 213,064 8,253 7.81% 175,438 6,433 7.39%
---------- ------- --------- -------
Total interest earning assets ................ 356,657 11,481 6.49% 327,619 9,450 5.82%
Cash and due from banks ................................. 8,031 6,715
Allowance for loan losses ............................... (2,228) (2,265)
Valuation allowance - available-for-sale securities ..... (1,119) (2,560)
Premises and equipment .................................. 7,957 7,266
Other assets ............................................ 3,713 3,933
---------- ---------
Total assets ................................. $ 373,011 $ 340,708
========== =========
Liabilities and shareholders' equity
Interest bearing deposits
Interest bearing transaction accounts ............. $ 57,291 $ 916 3.22% $ 40,185 $ 497 2.49%
Savings ........................................... 32,966 523 3.20% 36,089 499 2.79%
Time deposits $100M and over ...................... 80,442 1,863 4.67% 74,767 1,465 3.95%
Other time deposits ............................... 119,992 2,996 5.04% 113,612 2,295 4.07%
---------- ------- --------- -------
Total interest bearing deposits .............. 290,691 6,298 4.37% 264,653 4,756 3.62%
Short-term borrowings ................................... 25 3 24.20% 38 2 10.61%
Long-term debt .......................................... 5,434 109 4.05% 6,417 123 3.87%
---------- ------- --------- -------
Total interest bearing liabilities ........... 296,150 6,410 4.36% 271,108 4,881 3.63%
Noninterest bearing demand deposits ..................... 39,492 37,562
Other liabilities ....................................... 3,180 2,525
Shareholders' equity .................................... 34,189 29,513
---------- ---------
Total liabilities and shareholders' equity ... $ 373,011 $ 340,708
Interest rate spread 2.13% 2.19%
Net interest income and net yield on earning assets ..... $ 5,071 2.87% $ 4,569 2.81%
Interest free funds supporting earning assets ........... $ 60,507 $ 56,511
-----------------------------------------
(1) Yields and rates are annualized
(2) Yields on tax exempt instruments have not been adjusted to a tax-equivalent
basis.
(3) Nonaccrual loans are included in the average loan balances and income on
such loans is recognized on a cash basis.
(4) Includes immaterial amounts of loan fees.
13
Provision and Allowance for Loan Losses
The provision for loan losses was $120,000 for the second quarter of
2007, compared with $25,000 for the comparable period of 2006. For the first
half of 2007, the provision for loan losses was $120,000, compared with $50,000
recorded for the first half of 2006. At June 30, 2007, the allowance for loan
losses was 1.01% of loans, down slightly from 1.10% at December 31, 2006.
For the first six months of 2007, net charge-offs totaled $83,000,
compared with $47,000 in net charge offs during the same period of 2006. As of
June 30, 2007, there were $412,000 in nonaccrual loans and no loans 90 days or
more past due and still accruing interest. As of June 30, 2006, there were
$497,000 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:
Six Months Year Ended Six Months
Ended December 31, Ended
June 30, 2007 2006 June 30, 2006
------------- ---- -------------
(Dollars in thousands)
Allowance at beginning of period ................................. $ 2,242 $ 2,266 $ 2,266
Provision for loan losses ........................................ 120 65 50
Net charge-offs .................................................. (83) (89) (47)
--------- --------- ---------
Allowance at end of period ....................................... $ 2,279 $ 2,242 $ 2,269
========= ========= =========
Allowance as a percentage of loans outstanding
at period end .................................................. 1.01% 1.10% 1.22%
Loans at end of period ........................................... $ 225,971 $ 202,966 $ 186,050
========= ========= =========
14
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%
Net change ..................... 219 - 219 97
------ ------ ------ --------
June 30, 2007 .................. $ 412 $ - $ 412 0.18% $ 3,122 1.38%
====== ====== ====== ========
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. As of June 30, 2007, approximately 73% of the Company's
potential problem loans were included in the Company's "least severe" category
of potential problem loans.
Noninterest Income
Noninterest income totaled $502,000 for the second quarter of 2007,
compared with $539,000 for the 2006 quarter. Service charges on deposit accounts
in the 2007 second quarter were $343,000, representing a decrease of $39,000
from the prior year quarter. Mortgage brokerage income in the second quarter of
2007 was approximately $9,000 less than in the 2006 quarter. There were no sales
of any securities in either the 2007 or 2006 second quarter.
For the six months ended June 30, 2007, noninterest income totaled
$988,000, compared with $1,078,000 for the same period of 2006. Service charges
on deposit accounts in the 2007 six months period were $677,000 representing a
decrease of $69,000 from the prior year period. Mortgage brokerage income in the
2007 six months period was approximately $18,000 less than in the 2006 period.
No gains or losses on sales of securities were recognized in either the 2007 or
2006 six months 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 $1,642,000 for the second quarter of 2007
compared with $1,676,000 for the same quarter of 2006, representing a decrease
of $34,000. Compared with the 2006 period, employee benefits for the 2007
three-month period decreased by $16,000 and directors fees decreased by $45,000
as a result of the Company's accelerating the vesting, and the recognition of
the associated expenses, of all previously-issued stock options in the fourth
quarter of 2006. The Company does not plan to issue any form of share-based
compensation for the foreseeable future. Occupancy expenses increased for the
2007 three-month period due to higher utility expenses and increases in
depreciation and other expenses related to the new Seneca office.
For the six months ended June 30, 2007, salaries and employee benefits
increased by $66,000 over the amount for the 2006 period primarily as a result
of opening the new Seneca office. Net occupancy and furniture and equipment
expenses increased by an aggregate of $60,000.
The Company continues to pursue a strategy to increase its market share
in its local market areas in Anderson and Oconee Counties of South Carolina.
Oconee County is served from four offices which are located in Seneca, Walhalla
and Westminster. The Anderson County market is served from offices in Anderson
15
and Williamston. The Company started construction of an additional office on
Highway 81 in Anderson County during the second quarter of 2007. This new office
is expected to open for business during the fourth quarter of 2007.
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 are 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 has significant amounts of
credit availability under its FHLB lines of credit and federal funds purchased
facilities.
As of June 30, 2007, the ratio of loans to total deposits was 68.9%,
compared with 65.9% as of December 31, 2006. Deposits as of June 30, 2007 were
$328,185,000, an increase of $20,228,000 or 6.6% 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 $1,304,000 since December 31,
2006 as the result of net income of $1,896,000 for the first six months of 2007,
less a $668,000 change in unrealized gains and losses on available-for-sale
securities, net of deferred income tax effects and $76,000 received from the
exercise of employee stock options. Unrealized losses on available-for-sale
securities are not considered to be other than temporary. The Company's
available-for-sale securities consist of debt issuances of government-sponsored
enterprises. While not directly guaranteed by the U. S. Government, these issues
are generally considered to be of high quality and default risk is believed to
be remote. Therefore, the changes in market values are believed to be the result
only of changes in market interest rates. In addition, the Company currently has
both the intent and the ability to hold such securities until the market value
recovers, including until maturity.
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 June 30, 2007 risk based capital ratios for the Company and the
Bank are presented in the following table, compared with the "well capitalized"
and minimum ratios under the regulatory definitions and guidelines:
Total
Tier 1 Capital Leverage
------ ------- --------
Community First Bancorporation ............... 15.1% 16.1% 9.7%
Community First Bank ......................... 14.6% 15.5% 9.3%
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 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.
Following are the off-balance-sheet financial instruments whose contract amounts
represent credit risk:
16
June 30, 2007
-------------
(Dollars in
thousands)
Loan commitments ............... $ 44,874
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 or six months ended June 30,
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 are 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 June 30 2007, the
model indicates that net interest income would decrease $59,000 and net income
would decrease $38,000 in the next twelve months if interest rates rose by 100
basis points. Conversely, net interest income would increase $83,000 and net
income would increase $53,000 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 June 30, 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.
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.
17
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 4. - Submission of Matters to a Vote of Security Holders.
On Tuesday, April 24, 2007, the shareholders of Community First
Bancorporation held their regular annual meeting. At the meeting, one matter was
submitted to a vote with results as follows:
1. Election of three directors to hold office for three-year terms:
SHARES VOTED
-----------------------------------------
AUTHORITY BROKER
DIRECTORS FOR WITHHELD NON-VOTES
--- -------- ---------
Blake L. Griffith ......... 1,931,920 0 0
Robert H. Edwards ......... 1,931,920 0 0
Gary V. Thrift ............ 1,931,920 0 0
The following directors continue to serve until the expiration of their
terms at the annual meetings to be held in the years indicated and were not
voted on at the 2007 annual meeting: James E. McCoy - 2008, James E. Turner -
2008, Charles L. Winchester - 2008, Larry S. Bowman, MD - 2009, William M. Brown
- 2009, John R. Hamrick - 2009, and Frederick D. Shepherd, Jr. - 2009.
Item 6. - Exhibits
Exhibits 31. Rule 13a-14(a)/15d-14(a) Certifications
32. Certifications Pursuant to 18 U.S.C. Section 1350
18
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
August 9, 2007 /s/ Frederick D. Shepherd, Jr.
----------------- ---------------------------------------------
Date Frederick D. Shepherd, Jr., Chief Executive
Officer and Chief Financial Officer
19
EXHIBIT INDEX
31. Rule 13a-14(a)/15d-14(a) Certifications
32. Certifications Pursuant to 18 U.S.C. Section 1350
20