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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2009
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 0-51296
COMMUNITY FINANCIAL SHARES, INC.
(Exact name of registrant as specified in its charter)
Delaware | 36-4387843 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
357 Roosevelt Road Glen Ellyn, Illinois | 60137 | |
(Address of principal executive offices) | (Zip Code) |
(630) 545-0900
(Registrant’s telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last report)
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 has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No x
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 definition 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 | ¨ (Do not check if a smaller reporting company) | Smaller Reporting Company | 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.
Class | Outstanding at May 8, 2009 | |
Common Stock, no par value per share | 1,245,267 shares |
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PART I | ||||
Item 1. | Financial Statements | 3 | ||
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 11 | ||
Item 3. | Quantitative and Qualitative Disclosures about Market Risk | 19 | ||
Item 4(T) | Controls and Procedures | 20 | ||
PART II | ||||
Item 1. | Legal Proceedings | 21 | ||
Item 1A. | Risk Factors | 21 | ||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 21 | ||
Item 3. | Defaults Upon Senior Securities | 21 | ||
Item 4. | Submission of Matters to a Vote of Security Holders | 21 | ||
Item 5. | Other Information | 21 | ||
Item 6. | Exhibits | 21 | ||
Signatures |
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ITEM 1. | FINANCIAL STATEMENTS |
COMMUNITY FINANCIAL SHARES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
March 31, 2009 | December 31, 2008 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
Cash and due from banks | $ | 6,510 | $ | 7,286 | ||||
Interest-bearing deposits | 22,521 | 8,539 | ||||||
Cash and cash equivalents | 29,031 | 15,825 | ||||||
Interest-bearing time deposits | — | 992 | ||||||
Securities available for sale | 31,334 | 25,972 | ||||||
Loans held for sale | 1,775 | 1,410 | ||||||
Loans, less allowance for loan losses of $3,169 and $3,300 at March 31, 2009 and December 31, 2008, respectively | 215,471 | 219,615 | ||||||
Federal Home Loan Bank stock | 5,398 | 5,398 | ||||||
Premises and equipment, net | 16,029 | 16,112 | ||||||
Cash value of life insurance | 5,525 | 5,469 | ||||||
Interest receivable and other assets | 4,043 | 3,884 | ||||||
Total assets | $ | 308,606 | $ | 294,677 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Deposits | $ | 267,225 | $ | 253,515 | ||||
Federal Home Loan Bank advances | 17,000 | 17,000 | ||||||
Other borrowings | 2,000 | 2,000 | ||||||
Subordinated debentures | 3,609 | 3,609 | ||||||
Interest payable and other liabilities | 2,036 | 1,940 | ||||||
Total liabilities | 291,870 | 278,064 | ||||||
Commitments and contingent liabilities | ||||||||
Shareholders’ equity | ||||||||
Common stock - no par value, 5,000,000 shares authorized; 1,245,267 and 1,245,267 shares issued and outstanding at March 31, 2009 and December 31, 2008, respectively | — | — | ||||||
Paid-in capital | 4,870 | 4,866 | ||||||
Retained earnings | 12,283 | 12,201 | ||||||
Accumulated other comprehensive loss | (417 | ) | (454 | ) | ||||
Total shareholders’ equity | 16,736 | 16,613 | ||||||
Total liabilities and shareholders’ equity | $ | 308,606 | $ | 294,677 | ||||
See Notes to Condensed Consolidated Financial Statements
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COMMUNITY FINANCIAL SHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31, 2009 and 2008
(In thousands, except share and per share data)
(Unaudited)
Three Months Ended March 31, | ||||||||
2009 | 2008 | |||||||
Interest income | ||||||||
Loans | $ | 3,064 | $ | 3,743 | ||||
Securities: | ||||||||
Taxable | 227 | 263 | ||||||
Exempt from federal income tax | 125 | 132 | ||||||
Federal Home Loan Bank dividends and other | 11 | 4 | ||||||
Total interest income | 3,427 | 4,142 | ||||||
Interest expense | ||||||||
Deposits | 1,247 | 1,798 | ||||||
Federal funds purchased | — | 31 | ||||||
Federal Home Loan Bank advances and other borrowed funds | 132 | 232 | ||||||
Subordinated debentures | 32 | 57 | ||||||
Total interest expense | 1,411 | 2,118 | ||||||
Net interest income | 2,016 | 2,024 | ||||||
Provision for loan losses | 90 | 30 | ||||||
Net interest income after provision for loan losses | 1,926 | 1,994 | ||||||
Non-interest income | ||||||||
Service charges on deposit accounts | 159 | 145 | ||||||
Gain on sale of loans | 233 | 172 | ||||||
Gain on sale of securities | 50 | 79 | ||||||
Loss on sale of foreclosed assets | (63 | ) | — | |||||
Other non-interest income | 149 | 132 | ||||||
Total non-interest income | 528 | 528 | ||||||
Non-interest expense | ||||||||
Salaries and employee benefits | 1,289 | 1,331 | ||||||
Net occupancy and equipment expense | 375 | 355 | ||||||
Data processing expense | 215 | 204 | ||||||
Advertising and promotions | 67 | 71 | ||||||
Professional fees | 115 | 88 | ||||||
Other operating expenses | 366 | 445 | ||||||
Total non-interest expense | 2,427 | 2,494 | ||||||
Income before income taxes | 27 | 28 | ||||||
Provision (benefit) for income taxes | (55 | ) | (53 | ) | ||||
Net income | $ | 82 | $ | 81 | ||||
Earnings per share | ||||||||
Basic | $ | 0.07 | $ | 0.06 | ||||
Diluted | $ | 0.07 | $ | 0.06 | ||||
Average shares outstanding basic | 1,245,267 | 1,248,666 | ||||||
Average shares outstanding diluted | 1,245,344 | 1,254,898 | ||||||
Dividends per share | $ | 0.00 | $ | 0.06 |
See Notes to Condensed Consolidated Financial Statements
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COMMUNITY FINANCIAL SHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Three Months Ended March 31, 2009 and 2008
(In thousands, except share data)
(Unaudited)
Number of Common Shares | Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Shareholders’ Equity | |||||||||||||||
Balance at January 1, 2009 | 1,245,267 | $ | 4,866 | $ | 12,201 | $ | (454 | ) | $ | 16,613 | |||||||||
Net income | — | — | 82 | — | 82 | ||||||||||||||
Change in unrealized net loss on securities available for sale, net of reclassifications and tax effects | — | — | — | 37 | 37 | ||||||||||||||
Total comprehensive income | 119 | ||||||||||||||||||
Stock option expense | — | 4 | — | — | 4 | ||||||||||||||
Balance at March 31, 2009 | 1,245,267 | $ | 4,870 | $ | 12,283 | $ | (417 | ) | $ | 16,736 | |||||||||
Balance at January 1, 2008 | 1,250,880 | $ | 4,999 | $ | 13,630 | $ | (124 | ) | $ | 18,505 | |||||||||
Net income | — | — | 81 | — | 81 | ||||||||||||||
Change in unrealized net loss on securities available for sale, net of reclassifications and tax effects | — | — | — | (93 | ) | (93 | ) | ||||||||||||
Total comprehensive loss | (12 | ) | |||||||||||||||||
Cash dividends ($0.06 per share) | — | — | (75 | ) | — | (75 | ) | ||||||||||||
Stock repurchased | (6,333 | ) | (165 | ) | — | — | (165 | ) | |||||||||||
Stock option expense | — | 6 | — | — | 6 | ||||||||||||||
Stock options exercised | 120 | 3 | — | — | 3 | ||||||||||||||
Balance at March 31, 2008 | 1,244,667 | $ | 4,843 | $ | 13,636 | $ | (217 | ) | $ | 18,262 | |||||||||
See Notes to Condensed Consolidated Financial Statements
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COMMUNITY FINANCIAL SHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2009 and 2008
(In thousands)
(Unaudited)
Three Months Ended March 31, | ||||||||
2009 | 2008 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net income | $ | 82 | $ | 81 | ||||
Adjustments to reconcile net income to net cash from operating activities | ||||||||
Amortization on securities, net | 4 | 2 | ||||||
Depreciation | 159 | 170 | ||||||
Provision for loan losses | 90 | 30 | ||||||
Gain on sale of securities | (50 | ) | (79 | ) | ||||
Loss on sale of foreclosed assets | 63 | — | ||||||
Gain on sale of loans | (233 | ) | (172 | ) | ||||
Originations of loans for sale | (12,291 | ) | (9,362 | ) | ||||
Proceeds from sales of loans | 12,524 | 9,534 | ||||||
Compensation cost of stock options | 4 | 6 | ||||||
Change in cash value of life insurance | (56 | ) | (54 | ) | ||||
Change in interest receivable and other assets | (244 | ) | 117 | |||||
Change in interest payable and other liabilities | 96 | (122 | ) | |||||
Net cash from operating activities | 148 | 151 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Purchases of securities available for sale | (10,097 | ) | (4,180 | ) | ||||
Maturities and calls of securities available for sale | 2,778 | 7,116 | ||||||
Proceeds from sales of securities available for sale | 3,054 | 2,118 | ||||||
Net change in loans | 3,689 | (2,275 | ) | |||||
Property and equipment expenditures, net | (77 | ) | (649 | ) | ||||
Net cash from (used in) investing activities | (653 | ) | 2,130 | |||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Change in: | ||||||||
Non-interest bearing and interest bearing demand deposits and savings | 12,171 | 10,210 | ||||||
Certificates and other time deposits | 1,540 | (4,143 | ) | |||||
Short term borrowings | — | (7,500 | ) | |||||
Proceeds of borrowings | 2,000 | 6,000 | ||||||
Repayments of borrowings | (2,000 | ) | (2,000 | ) | ||||
Purchase of stock | — | (165 | ) | |||||
Exercise of stock options | — | 3 | ||||||
Dividends paid | — | (75 | ) | |||||
Net cash from financing activities | 13,711 | 2,330 | ||||||
Change in cash and cash equivalents | 13,206 | 4,611 | ||||||
Cash and cash equivalents at beginning of period | 15,825 | 7,789 | ||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 29,031 | $ | 12,400 | ||||
See Notes to Condensed Consolidated Financial Statements
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COMMUNITY FINANCIAL SHARES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table dollars in thousands)
March 31, 2009 and 2008
NOTE 1 – BASIS OF PRESENTATION
The accounting policies followed in the preparation of the interim condensed consolidated financial statements are consistent with those used in the preparation of annual consolidated financial statements. The interim condensed consolidated financial statements reflect all normal and recurring adjustments, which are necessary, in the opinion of management of Community Financial Shares, Inc. (the “Company”), for a fair statement of results for the interim periods presented. Results for the three months ended March 31, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009 or any other period.
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for the interim financial period and with the instructions to Form 10-Q. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, which was filed with the U.S. Securities and Exchange Commission on March 31, 2009. The condensed consolidated balance sheet of the Company as of December 31, 2008 has been derived from the audited consolidated balance sheet as of that date.
NOTE 2 – EARNINGS PER SHARE
The number of shares used to compute basic and diluted earnings per share were as follows:
Three Months Ended March 31, | ||||||
2009 | 2008 | |||||
Net income (in thousands) | $ | 82 | $ | 81 | ||
Weighted Average Shares outstanding | 1,245,267 | 1,248,666 | ||||
Effect of dilutive securities: | ||||||
Stock options | 77 | 6,232 | ||||
Shares used to compute diluted earnings per share | 1,245,344 | 1,254,898 | ||||
Earnings per share: | ||||||
Basic | $ | 0.07 | $ | 0.06 | ||
Diluted | 0.07 | 0.06 |
There were 34,730 anti-dilutive shares for the three months ended March 31, 2009 included in the above table. There were no anti-dilutive shares for the three months ended March 31, 2008.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Table dollars in thousands)
March 31, 2009 and 2008
NOTE 3 – CAPITAL RATIOS
At the dates indicated, the capital ratios of Community Bank-Wheaton/Glen Ellyn, the Company’s wholly owned subsidiary (the “Bank”), were as follows:
March 31, 2009 | December 31, 2008 | |||||||||||
Amount | Ratio | Amount | Ratio | |||||||||
Total capital (to risk-weighted assets) | $ | 24,996 | 10.8 | % | $ | 24,930 | 10.5 | % | ||||
Tier I capital (to risk-weighted assets) | 22,100 | 9.5 | % | 21,965 | 9.3 | % | ||||||
Tier I capital (to average assets) | 22,100 | 7.3 | % | 21,965 | 7.6 | % |
Without prior approval, current regulations allow the Bank to pay dividends to the Company not exceeding net profits (as defined in such regulations) for the current year plus those for the previous two years. The Bank normally restricts dividends to a lesser amount because of the need to maintain an adequate capital structure. At March 31, 2009, regulatory approval is required for all dividend declarations by both the Bank and the Company. As a result of discussions with the Bank’s regulators, management has agreed to maintain a ratio of total capital to risk-weighted assets of 10.5% at December 31, 2008 and work towards a ratio of 11.0%. While the Bank’s ratio of total capital to risk-weighted assets remains below the 11.0% future agreed-upon level, management is preparing a written plan for reaching 11.0% to be submitted to the Bank’s regulators pursuant to management’s previous conversations with such regulators.
At March 31, 2009 and December 31, 2008, the Bank was categorized by its regulators as well capitalized in accordance with all regulatory capital requirements.
NOTE 4 – DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES
Effective January 1, 2008, the Company adopted Statement of Financial Accounting Standards No. 157,Fair Value Measurements(“FAS 157”). FAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosure about fair value measurements. FAS 157 has been applied prospectively as of the beginning of the year.
FAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FAS 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. FAS 157 describes the following three levels of inputs that may be used to measure fair value:
Level 1 | Quoted prices in active markets for identical assets or liabilities. | |
Level 2 | Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | |
Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
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The following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis and recognized in the accompanying balance sheet, as well as the general classification of such instruments pursuant to the valuation hierarchy.
Available for Sale Securities
If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Level 2 securities include certain collateralized mortgage and debt obligations and certain municipal securities. The following tables are as of March 31, 2009 and December 31, 2008, respectively:
Fair Value | Fair Value Measurements Using | |||||||||||
Quoted Prices In Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||
Available for sale securities | $ | 31,334 | $ | — | $ | 31,334 | $ | — | ||||
Fair Value | Fair Value Measurements Using | |||||||||||
Quoted Prices In Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||
Available for sale securities | $ | 25,972 | $ | — | $ | 25,972 | $ | — |
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Following is a description of the valuation methodologies used for instruments measured at fair value on a non-recurring basis and recognized in the accompanying March 31, 2009 and December 31, 2008 balance sheets, as well as the general classification of such instruments pursuant to the valuation hierarchy.
Impaired Loans
Loan impairment is reported when scheduled payments under contractual terms are deemed uncollectible. Impaired loans are carried at fair value as estimated using current and prior appraisals, discounting factors, the borrower’s financial ability to repay, estimated cash flows from the property and other relevant factors. A portion of the allowance for loan losses is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance. Adjustments to the estimated fair value of impaired loans may result in increases or decreases to the provision for loan losses recorded in current earnings. The following tables are as of March 31, 2009 and December 31, 2008, respectively:
Fair Value | Fair Value Measurements Using | |||||||||||
Quoted Prices In Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||
Impaired loans | $ | 2,817 | $ | — | $ | — | $ | 2,817 | ||||
Fair Value | Fair Value Measurements Using | |||||||||||
Quoted Prices In Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||
Impaired loans | $ | 2,572 | $ | — | $ | — | $ | 2,572 |
NOTE 5 – ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards, The Hierarchy of Generally Accepted Accounting Principles (“SFAS 162”). During May 2008, the FASB issued SFAS 162. This Statement identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States. This Statement is effective 60 days following the SEC approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” Adoption of SFAS 162 will not be a change in the Company’s current accounting practices; therefore, it will not have a material impact on the Company’s consolidated financial condition or results of operations.
In April 2009, the FASB issued the following new accounting standards:
FASB Staff Position FAS 157-4,Determining Whether a Market Is Not Active and a Transaction Is Not Distressed, or FSP FAS 157-4; FSP FAS 157-4 provides guidelines for making fair value measurements more consistent with the principles presented in SFAS 157. FSP FAS 157-4 provides additional authoritative guidance in determining whether a market is active or inactive, and whether a transaction is distressed, is applicable to all assets and liabilities (i.e. financial and nonfinancial) and will require enhanced disclosures.
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FASB Staff Position FAS 115-2, FAS 124-2, and EITF 99-20-2,Recognition and Presentation of Other-Than-Temporary Impairments,or FSP FAS 115-2, FAS 124-2, FAS 124-2, and EITF 99-20-2 provides additional guidance to provide greater clarity about the credit and noncredit component of an other-than-temporary impairment event has occurred. This FSP applies to debt securities.
FASB Staff Position FAS 107-1 and APB 28-1,Interim Disclosures about Fair Value of Financial Instruments,or FSP FAS 107-1 and APB 28-1. FSP FAS 107-1 and APB 28-1, amends FASB Statement No. 107,Disclosures about Fair Value of Financial Instruments,to require disclosures about fair value of financial instruments in interim as well as in annual financial statements. This FSP also amends APB Opinion No. 28,Interim Financial Reporting,to require those disclosures in all interim financial statements.
These standards are effective for periods ending after June 15, 2009. We are evaluating the impact that these standards will have on our financial statements.
NOTE 6 – SUBSEQUENT EVENT
On March 12, 2009 the Company received preliminary approval on its application for participation in the Troubled Asset Relief Program Capital Purchase Program under the Emergency Economic Stabilization Act of 2008.
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion and analysis is intended as a review of significant factors affecting the financial condition and results of operations of the Company for the periods indicated. The discussion should be read in conjunction with the Condensed Consolidated Financial Statements and Notes included in this Form 10-Q. In addition to historical information, the following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. The Company’s actual results could differ significantly from those anticipated in these forward-looking statements as a result of certain factors discussed elsewhere in this report.
Safe Harbor Statement
This report (including information incorporated herein by reference) contains, and future oral and written statements of the Company and its management may contain, forward-looking statements, within the meaning of such as defined term in the Private Securities Litigation Reform Act of 1995, with respect to the financial condition, results of operations, plans, objectives, future performance and business of the Company. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of the Company’s management and on information currently available to management, are generally identifiable by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “intend,” “estimate,” “may,” “will,” “would,” “could,” “should” or other similar expressions. Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events.
The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations and future prospects of the Company and its subsidiaries include, but are not limited to, the following:
• | The strength of the United States economy in general and the strength of the local economies in which the Company conducts its operations which may be less favorable than expected and may result in, among other things, a deterioration in the credit quality and value of the Company’s assets. |
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• | The potential impact of the Company’s participation in the U.S. Department of Treasury’s Troubled Asset Relief Program’s Capital Purchase Program. |
• | The economic impact of past and any future terrorist attacks, acts of war or threats thereof and the response of the United States to any such threats and attacks. |
• | The effects of, and changes in, federal, state and local laws, regulations and policies affecting banking, securities, insurance and monetary and financial matters. |
• | The effects of changes in interest rates (including the effects of changes in the rate of prepayments of the Company’s assets) and the policies of the Board of Governors of the Federal Reserve System. |
• | The ability of the Company to compete with other financial institutions as effectively as the Company currently intends due to increases in competitive pressures in the financial services sector. |
• | The inability of the Company to obtain new customers and to retain existing customers. |
• | The timely development and acceptance of products and services, including products and services offered through alternative delivery channels such as the Internet. |
• | Technological changes implemented by the Company and by other parties, including third party vendors, which may be more difficult or more expensive than anticipated or which may have unforeseen consequences to the Company and its customers. |
• | The ability of the Company to develop and maintain secure and reliable electronic systems. |
• | The ability of the Company to retain key executives and employees and the difficulty that the Company may experience in replacing key executives and employees in an effective manner. |
• | Consumer spending and saving habits which may change in a manner that affects the Company’s business adversely. |
• | Business combinations and the integration of acquired businesses which may be more difficult or expensive than expected. |
• | The costs, effects and outcomes of existing or future litigation. |
• | Changes in accounting policies and practices, as may be adopted by state and federal regulatory agencies and the Financial Accounting Standards Board. |
• | The ability of the Company to manage the risks associated with the foregoing as well as anticipated. |
These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Additional information concerning the Company and its business, including other factors that could materially affect the Company’s financial results, is included in the Company’s filings with the Securities and Exchange Commission.
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Overview
Community Financial Shares, Inc. (the “Company”) is the holding company for Community Bank- Wheaton/Glen Ellyn (the “Bank”). The Company is headquartered in Glen Ellyn, Illinois and operates four offices in its market. One location is in Glen Ellyn and three are located in Wheaton.
The Company’s principal business is conducted by the Bank and consists of offering a full range of community-based financial services, including commercial and retail banking services. The profitability of the Company’s operations depends primarily on its net interest income, provision for loan losses, other income, and other expenses. Net interest income is the difference between the income the Company receives on its loan and securities portfolios and its cost of funds, which consists of interest paid on deposits and borrowings. The provision for loan losses reflects the cost of credit risk in the Company’s loan portfolio. Other income consists of service charges on deposit accounts, gains on loan sales, securities gains (losses), and other income. Other expenses include salaries and employee benefits, as well as occupancy and equipment expenses and other noninterest expenses.
Net interest income is dependent on the amounts and yields of interest-earning assets as compared to the amounts of and rates on interest-bearing liabilities. Net interest income is sensitive to changes in market rates of interest and the Company’s asset/liability management procedures in coping with such changes. The provision for loan losses is dependent upon management’s assessment of the collectibility of the loan portfolio under current economic conditions.
Comparison of Financial Condition at March 31, 2009 and December 31, 2008
Total assets at March 31, 2009 were $308.6 million, which represented an increase of $13.9 million, or 4.7%, compared to $294.7 million at December 31, 2008. The change in total assets was primarily due to increases in cash and cash equivalents and investment securities. Cash and cash equivalents increased by $13.2 million, or 83.4%, to $29.0 million at March 31, 2009. The increase in cash and cash equivalents is primarily due to significant growth in deposits and a decrease in loan demand. Investment securities increased by $5.3 million, or 20.6%, to $31.3 million at March 31, 2009 from $26.0 million at December 31, 2008. This increase is primarily due to the net result of $10.1 million of securities purchased, $3.1 million in securities sold and $2.3 million in securities either called or matured in the first three months of 2009. Loans receivable decreased by $4.1 million, or 1.9%, to $215.5 million at March 31, 2009 from $219.6 million at December 31, 2008. The decrease in loans is primarily due to the payoff of one large commercial line of credit.
Total liabilities at March 31, 2009 were $291.9 million, which represented an increase of $13.8 million, or 5.0%, compared to $278.1 million at December 31, 2008. Deposits increased $13.7 million, or 5.4%, to $267.2 million at March 31, 2009 as compared to $253.5 million at December 31, 2008. The increase in deposits primarily consists of increases in the Bank’s core deposit accounts. Interest bearing demand deposit accounts increased by $8.9 million, or 15.9%, to $64.7 million at March 31, 2009 from $55.8 million at December 31, 2008 and regular savings accounts increased $2.7 million, or 11.2%, to $25.7 million at March 31, 2009 from $23.0 million at December 31, 2008. The Bank’s commercial loan staff continues to place an emphasis on obtaining deposit relationships with our current commercial loan clients. The percentage of interest bearing deposit accounts to total deposits increased to 24.2% at March 31, 2009 from 22.0% at December 31, 2008 and the percentage of certificates of deposit decreased to 41.2% at March 31, 2009 from 42.8% at December 31, 2008. Federal Home Loan Bank (“FHLB”) advances and other borrowed money remained unchanged at $19.0 million as of March 31, 2009 and December 31, 2008.
Shareholders’ equity increased by $123,000, or 0.74%, to $16.7 million at March 31, 2009 as compared to $16.6 million at December 31, 2008. The increase in shareholders’ equity was primarily the result of increased net income for the three months ended March 31, 2009 and an increase of $37,000 in the Company’s accumulated other comprehensive loss relating to the change in fair value of its available-for-sale investment portfolio during the first three months of 2009.
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Comparison of Operating Results for the Three Months Ended March 31, 2009 and 2008
General.The Company’s net income increased $1,000 to $82,000 for the three months ended March 31, 2009, from $81,000 for the three months ended March 31, 2008. This represents a 16.7% increase in basic and diluted earnings per share to $0.07 per share for the three months ended March 31, 2009 from $0.06 per share for the three months ended March 31, 2008. The slight increase in net income during the first quarter of 2009 is the result of the combined effect of i) a $67,000 decrease in noninterest expenses; ii) an $8,000 decrease in net interest income; and iii) a $60,000 increase in the Bank’s provision for loan losses.
Net interest income.The following table summarizes interest and dividend income and interest expense for the three months ended March 31, 2009 and 2008.
Three Months Ended March 31, | |||||||||||||
2009 | 2008 | $ Change | % Change | ||||||||||
(Dollars in thousands) | |||||||||||||
Interest and dividend income: | |||||||||||||
Interest and fees on loans | $ | 3,064 | $ | 3,743 | $ | (679 | ) | (18.14 | )% | ||||
Securities: | |||||||||||||
Taxable | 227 | 263 | (36 | ) | (13.69 | ) | |||||||
Exempt from federal tax | 125 | 132 | (7 | ) | (5.30 | ) | |||||||
Federal Home Loan Bank dividends and other | 11 | 4 | 7 | 175.00 | |||||||||
Total interest and dividend income | 3,427 | 4,142 | (715 | ) | (17.26 | ) | |||||||
Interest expense: | |||||||||||||
Deposits | 1,247 | 1,798 | (551 | ) | (30.65 | ) | |||||||
Federal funds purchased | — | 31 | (31 | ) | (100.00 | ) | |||||||
Federal Home Loan Bank advances and other borrowings | 132 | 232 | (100 | ) | (43.10 | ) | |||||||
Subordinated debentures | 32 | 57 | (25 | ) | (43.86 | ) | |||||||
Total interest expense | 1,411 | 2,118 | (707 | ) | (33.38 | ) | |||||||
Net interest income | $ | 2,016 | $ | 2,024 | $ | (8 | ) | (0.39 | ) | ||||
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The following table summarizes average balances and annualized average yields or costs for the three months ended March 31, 2009 and 2008.
Three Months Ended March 31, | ||||||||||||||||||
2009 | 2008 | |||||||||||||||||
Average Balance | Interest | Average Yield/ Cost | Average Balance | Interest | Average Yield/ Cost | |||||||||||||
(Dollars in thousands) | ||||||||||||||||||
Interest-earning assets: | ||||||||||||||||||
Taxable securities | $ | 17,625 | $ | 227 | 5.24 | % | $ | 19,454 | $ | 263 | 5.41 | % | ||||||
Tax-exempt securities | 11,509 | 125 | 4.41 | 12,221 | 132 | 4.35 | ||||||||||||
Loan receivables, net | 221,391 | 3,064 | 5.61 | 232,738 | 3,743 | 6.45 | ||||||||||||
Interest-bearing deposits | 16,251 | 10 | 0.25 | 343 | 2 | 2.42 | ||||||||||||
FHLB stock | 5,398 | 1 | 0.07 | 5,398 | 2 | 0.13 | ||||||||||||
Total interest-earning assets | 272,174 | 3,427 | 5.11 | 270,154 | 4,142 | 6.15 | ||||||||||||
Interest-bearing liabilities: | ||||||||||||||||||
NOW accounts | 59,251 | 164 | 1.13 | 41,326 | 102 | 0.99 | ||||||||||||
Regular savings | 24,345 | 9 | 0.15 | 26,077 | 26 | 0.39 | ||||||||||||
Money market accounts | 38,848 | 157 | 1.64 | 39,803 | 262 | 2.64 | ||||||||||||
Certificates of deposit | 110,795 | 917 | 3.36 | 117,404 | 1,408 | 4.81 | ||||||||||||
FHLB advances and other | 19,000 | 132 | 2.82 | 19,610 | 232 | 4.75 | ||||||||||||
Federal funds purchased | — | — | — | 3,536 | 31 | 3.50 | ||||||||||||
Subordinated debentures | 3,609 | 32 | 3.55 | 3,609 | 57 | 6.36 | ||||||||||||
Total interest-bearing deposits | $ | 255,848 | 1,411 | 2.24 | $ | 251,365 | 2,118 | 3.38 | ||||||||||
Net interest income | $ | 2,016 | $ | 2,024 | ||||||||||||||
Net interest spread | 2.87 | % | 2.77 | % | ||||||||||||||
Net interest income to average interest-earning assets | 3.00 | % | 3.01 | % | ||||||||||||||
Interest Income. Interest income decreased $715,000, or 17.3%, to $3.4 million for the three months ended March 31, 2009, compared to $4.1 million in the same period in 2008. This decrease resulted primarily from a decrease in average yield. The largest component was a decrease of $679,000 in interest income on loans for the three months ended March 31, 2009 compared to the comparable prior year period.
Loan interest income decreased $679,000, or 18.1%, to $3.1 million for the three months ended March 31, 2009, compared to $3.7 million for the comparable prior year period. This decrease resulted from a decrease in the average yield of 84 basis points to 5.61% for the three months ended March 31, 2009 from 6.45% for the comparable prior year period and a decrease in the average balance of $11.3 million to $221.4 million for the three months ended March 31, 2009 from $232.7 million for the comparable prior year period. There was a 225 basis point decrease in the federal funds interest rate since April 2008. The effect of such decreases had a negative impact due to approximately one half of the Bank’s portfolio being comprised of adjustable rate loans. In addition, interest on taxable securities decreased $36,000 for the three months ended March 31, 2009 compared to the comparable prior year period. This decrease is primarily due to a decrease in average balance of $1.9 million to $17.6 million for the three months ended March 31, 2009 from $19.5 million for the three months ended March 31, 2008. In addition, the average yield on taxable securities decreased 17 basis points to 5.24% for the three months ended March 31, 2009 from 5.41% for the comparable prior year period.
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Interest Expense.Interest expense decreased by $707,000, or 33.4%, to $1.4 million for the three months ended March 31, 2009, from $2.1 million for the three months ended March 31, 2008. This decrease resulted from a decrease in the average rate paid on interest bearing liabilities of 114 basis points to 2.24% for the three months ended March 31, 2009 from 3.38% for the comparable prior year period. This decrease was partially offset by an increase in the average balance of interest bearing liabilities of $4.4 million to $255.8 million for the three months ended March 31, 2009 from $251.4 million for the three months ended March 31, 2008. Interest expense resulting from FHLB advances and other borrowings decreased $100,000 during the three months ended March 31, 2009. The average balance on these borrowings decreased $610,000 to $19.0 million for the three months ended March 31, 2009 from $19.6 million for the comparable prior year period and there was a decrease in average cost of 193 basis points to 2.82% for the three months ended March 31, 2009 from 4.75% for the comparable period in 2008.
Net Interest Income before Provision for Loan Losses.Net interest income before provision for loan losses decreased $8,000, or 0.39%, to $2.0 million for the three months ended March 31, 2009 compared to the comparable period in 2008. The Company’s net interest margin expressed as a percentage of average earning assets fell to 3.00% for the three months ended March 31, 2009 as compared to 3.01% for the three months ended March 31, 2008. The yield on average earning assets decreased to 5.11% for the three months ended March 31, 2009 from 6.15% for the comparable period ended March 31, 2008, a 104 basis point decrease. This decrease in yield on average earning assets was primarily due to a decrease in loan yield, which resulted from the 225 basis point decrease in the federal funds interest rate since April 2008. The yield on average loans decreased to 5.61% for the three months ended March 31, 2009 from 6.45% for the three months ended March 31, 2008. In addition, there was a 114 basis point decrease in the cost of interest-bearing liabilities to 2.24% for the three months ended March 31, 2009 as compared to 3.38% a year earlier.
Provision for Loan Losses.The Bank’s provision for loan losses increased to $90,000 for the three months ended March 31, 2009 from $30,000 for the comparable period in 2008. The increase in the provision was the result of management’s quarterly analysis of the allowance for loan loss. At March 31, 2009, December 31, 2008 and March 31, 2008, non-performing loans totaled $3.0 million, $2.8 million and $454,000, respectively. At March 31, 2009, the ratio of the allowance for loan losses to non-performing loans was 104.0% compared to 119.7% at December 31, 2008 and 441.3% at March 31, 2008. The ratio of the allowance to total loans was 1.45%, 1.48% and 0.86%, at March 31, 2009, December 31, 2008 and March 31, 2008, respectively.
The amounts of the provision and allowance for loan losses are influenced by a number of factors, including current economic conditions, actual loss experience, industry trends and other factors, including real estate values in the Company’s market area and management’s assessment of current collection risks within the loan portfolio. Should the local economic climate begin to deteriorate, borrowers may experience difficulty paying off loans and the level of non-performing loans, charge- offs, and delinquencies could rise and require increases in the provision. The allowance for loan losses represents management’s estimate of probable incurred losses based on information available as of the date of the financial statements. The allowance for loan losses is based on management’s evaluation of the collectibility of the loan portfolio, including past loan loss experience, known and inherent risks in the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, and economic conditions. Management believes that, based on information available at March 31, 2009, the Bank’s allowance for loan losses was adequate to cover probable incurred losses inherent in its loan portfolio at that time. However, no assurances can be given that the Bank’s level of allowance for loan losses will be sufficient to cover loan losses incurred by the Bank or that future adjustments to the allowance will not be necessary if economic or other conditions differ substantially from the economic and other conditions used by management to determine the current level of the allowance. In addition, the FDIC as an integral part of its examination processes, periodically review the Bank’s allowance for loan losses and may require the Bank to make additional provisions for estimated loan losses based upon judgments different from those of management. The FDIC examines the Bank periodically and, accordingly, as part of this examination the allowance is reviewed utilizing specific guidelines. Based upon their review, the regulators may from time to time require reserves in addition to those previously provided.
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Noninterest Income
Three Months Ended March 31, | ||||||||||||||
2009 | 2008 | $ Change | % Change | |||||||||||
(Dollars in thousands) | ||||||||||||||
Non-interest income: | ||||||||||||||
Service charges on deposit accounts | $ | 159 | $ | 145 | $ | 14 | 9.66 | % | ||||||
Gain on sale of loans | 233 | 172 | 61 | 35.46 | ||||||||||
Gain on sale of securities | 50 | 79 | (29 | ) | (36.71 | ) | ||||||||
Loss on sale of foreclosed assets | (63 | ) | — | (63 | ) | — | ||||||||
Other non-interest income | 149 | 132 | 17 | 12.88 | ||||||||||
Total non-interest income | $ | 528 | $ | 528 | $ | — | — | |||||||
Noninterest income totaled $528,000 for both the three months ended March 31, 2009 and 2008. Loss on sale of foreclosed assets totaled $63,000 for the three months ended March 31, 2009. Gain on sale of loans increased $61,000 to $233,000 for the three months ended March 31, 2009 from $172,000 for the comparable prior year period and increased from $80,000 for the three months ended December 31, 2008. The Bank’s mortgage department has recently experienced an increase in loan applications due to the lower interest rate environment for mortgage loans. In addition, service charges on deposit accounts increased $14,000 to $159,000 for the three months ended March 31, 2009 from $145,000 for the comparable prior year period and are down from $174,000 for the three months ended December 31, 2008. The recent increase is partially due to the increase in deposit accounts.
Noninterest Expense
Three Months Ended March 31, | |||||||||||||
2009 | 2008 | $ Change | % Change | ||||||||||
(Dollars in thousands) | |||||||||||||
Non-interest expenses: | |||||||||||||
Salaries and employee benefits | $ | 1,289 | $ | 1,331 | $ | (42 | ) | (3.16 | )% | ||||
Net occupancy and equipment expense | 375 | 355 | 20 | 5.63 | |||||||||
Data processing expense | 215 | 204 | 11 | 5.39 | |||||||||
Advertising and promotions | 67 | 71 | (4 | ) | (5.63 | ) | |||||||
Professional fees | 115 | 88 | 27 | 30.68 | |||||||||
Other operating expenses | 366 | 445 | (79 | ) | (17.75 | ) | |||||||
Total non-interest expenses | $ | 2,427 | $ | 2,494 | $ | (67 | ) | (2.69 | ) | ||||
Noninterest expense decreased by $67,000 to $2.4 million for the three months ended March 31, 2009 from $2.5 million for the comparable prior year period and decreased by $175,000 from the three months ended December 31, 2008. Salaries and employee benefits decreased by $42,000, or 3.2%, to $1.3 million for the three months ended March 31, 2009. This decrease is primarily due to lower health insurance expenses incurred by the Company. Other operating expenses, including occupancy, data processing, and marketing and advertising expenses, increased by a net $27,000, or 4.3%, to $657,000 for the three months ended March 31, 2009 from $630,000 for the prior year period. Of this increase, $11,000 is related to data processing expense, which is partially due to increased volume resulting from deposit account growth and $20,000 is related to occupancy expenses, which is partially due to higher real estate taxes. These increases were partially offset by lower advertising and promotion expenses, which decreased $4,000 from the prior year period. Management continues to emphasize the importance of expense management and control in order to continue to provide expanded banking services to a growing market base.
Income Tax Expense.Income tax benefit remained relatively unchanged and totaled $55,000 and $53,000 for the three months ended March 31, 2009 and 2008, respectively.
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Critical Accounting Policies
The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States and conform to general practices within the banking industry. The Company’s significant accounting policies are described in detail in the notes to the consolidated financial statements included in the Company’s Form 10-K for the year ended December 31, 2008, which was filed with the U.S. Securities and Exchange Commission on March 31, 2009. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. The financial position and results of operations can be affected by these estimates and assumptions and are integral to the understanding of reported results. Critical accounting policies are those policies that management believes are the most important to the portrayal of the Company’s financial condition and results, and they require management to make estimates that are difficult, subjective, or complex.
Allowance for Credit Losses.The allowance for credit losses provides coverage for probable losses inherent in the Company’s loan portfolio. Management evaluates the adequacy of the allowance for credit losses each quarter based on changes, if any, in underwriting activities, the loan portfolio composition (including product mix and geographic, industry or customer-specific concentrations), trends in loan performance, regulatory guidance and economic factors. This evaluation is inherently subjective, as it requires the use of significant management estimates. Many factors can affect management’s estimates of specific and expected losses, including volatility of default probabilities, rating migrations, loss severity and economic and political conditions. The allowance is increased through provisions charged to operating earnings and reduced by net charge-offs.
The Company determines the amount of the allowance based on relative risk characteristics of the loan portfolio. The allowance recorded for commercial loans is based on reviews of individual credit relationships and an analysis of the migration of commercial loans and actual loss experience. The allowance recorded for homogeneous consumer loans is based on an analysis of loan mix, risk characteristics of the portfolio, fraud loss and bankruptcy experiences, and historical losses, adjusted for current trends, for each homogeneous category or group of loans. The allowance for credit losses relating to impaired loans is based on the loan’s observable market price, the collateral for certain collateral-dependent loans, or the discounted cash flows using the loan’s effective interest rate.
Regardless of the extent of the Company’s analysis of customer performance, portfolio trends or risk management processes, certain inherent but undetected losses are probable within the loan portfolio. This is due to several factors including inherent delays in obtaining information regarding a customer’s financial condition or changes in their unique business conditions, the judgmental nature of individual loan evaluations, collateral assessments and the interpretation of economic trends. Volatility of economic or customer-specific conditions affecting the identification and estimation of losses for larger non-homogeneous credits and the sensitivity of assumptions utilized to establish allowances for homogenous groups of loans are among other factors. The Company estimates a range of inherent losses related to the existence of these exposures. The estimates are based upon the Company’s evaluation of imprecision risk associated with the commercial and consumer allowance levels and the estimated impact of the current economic environment.
Liquidity and Capital Resources
The Company’s primary sources of funds are deposits, FHLB advances, and proceeds from principal and interest payments on loans and securities. While maturities, and scheduled amortization of loans and securities, and calls of securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions, and competition. The Company generally manages the pricing of its deposits to be competitive and to increase core deposit relationships.
Liquidity management is both a daily and long-term responsibility of management. The Company adjusts its investments in liquid assets based upon management’s assessment of (i) expected loan demand, (ii) expected deposit flows, (iii) yields available on interest-earning deposits and securities, and (iv) the objectives of its asset/liability management program. Excess liquid assets are invested generally in interest-earning overnight deposits and short- and intermediate-term U.S. government and agency obligations.
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The Company’s most liquid assets are cash and short-term investments. The levels of these assets are dependent on the Company’s operating, financing, lending, and investing activities during any given year. The Company has other sources of liquidity if a need for additional funds arises, including securities maturing within one year and the repayment of loans. The Company may also utilize the sale of securities available-for-sale, federal funds lines of credit from correspondent banks, and borrowings from the Federal Home Loan Bank of Chicago and M&I Bank.
Contractual Obligations
The following table discloses contractual obligations of the Company as of March 31, 2009:
(Dollars in Thousands) | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 and after | Total | ||||||||||||||
Federal Home Loan Bank advances | $ | 6,500 | $ | 4,000 | $ | 6,500 | — | — | — | $ | 17,000 | ||||||||||
Line of credit | 2,000 | — | — | — | — | — | 2,000 | ||||||||||||||
Subordinated debentures | — | — | — | — | — | 3,609 | 3,609 | ||||||||||||||
Data Processing (1), (2) | 405 | 561 | 581 | 601 | — | — | 2,148 | ||||||||||||||
Total | $ | 8,905 | $ | 4,561 | $ | 7,081 | $ | 601 | $ | — | $ | 3,609 | $ | 24,757 | |||||||
(1) | Estimated contract amount based on transaction volume. Actual expense was $551,000 and $461,000 in 2008 and 2007, respectively. |
(2) | Contract expires September 30, 2012. |
Off-Balance Sheet Arrangements
In the normal course of operations, we engage in a variety of financial transactions that, in accordance with U.S. generally accepted accounting principles, are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments, letters of credit and lines of credit. For information about our loan commitments and unused lines of credit, see Note 15 of the notes to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2008, as filed with the SEC on March 31, 2009. We currently have no plans to engage in hedging activities in the future. For the year ended December 31, 2008 and for the three months ended March 31, 2009, we engaged in no off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.
Impact of Inflation and Changing Prices
The financial statements and related data presented herein have been prepared in accordance with accounting principles generally accepted in the United States of America, which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on the operations of the Company is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates, generally, have a more significant impact on a financial institution’s performance than does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.
ITEM 3: | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Interest Rate Risk
For a discussion of the potential impact of interest rate changes upon the market value of the Company’s portfolio equity, see Item 7A in the Company’s Annual Report on Form 10-K for the year ended December 31,
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2008. Management, as part of its regular practices, performs periodic reviews of the impact of interest rate changes upon net interest income and the market value of the Company’s portfolio equity. Based on, among other factors, such reviews, management believes that there have been no material changes in the market risk of the Company’s asset and liability position since December 31, 2008.
ITEM 4(T): | CONTROLS AND PROCEDURES |
The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. In addition, based on that evaluation, no change in the Company’s internal control over financial reporting occurred during the quarter ended March 31, 2009 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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ITEM 1. | LEGAL PROCEEDINGS |
There are no material pending legal proceedings to which the Company or its subsidiaries are a party other than ordinary routine litigation incidental to their respective businesses.
ITEM 1A. | RISK FACTORS |
There are no material changes to the risk factors disclosed in the Company’s Form 10-K for the year ended December 31, 2008.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
None
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
None
ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
None
ITEM 5. | OTHER INFORMATION |
None
ITEM 6. | EXHIBITS |
31.1 | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) | |
31.2 | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) | |
32.1 | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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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 FINANCIAL SHARES, INC. |
(Registrant) |
/s/ Scott W. Hamer |
Scott W. Hamer |
Dated: May 13, 2009 |
President and Chief Executive Officer (Principal Executive Officer) |
/s/ Eric J. Wedeen |
Eric J. Wedeen |
Dated: May 13, 2009 |
Chief Financial Officer (Principal Financial Officer) |