SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-26292
COMMUNITY FINANCIAL CORP.
- -----------------------------------------------------
(Exact name of registrant as specified in its charter)
ILLINOIS 37-1337630
- ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
240 E. CHESTNUT STREET, OLNEY, ILLINOIS 62450-2295
- --------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(618) 395-8676
--------------
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 ninety
days. Yes X No
--- ---
As of August 19, 1999, the Registrant had 2,223,645
shares of Common Stock issued and outstanding.
CONTENTS
PART I. FINANCIAL INFORMATION PAGE
--------------------- ----
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1999
and December 31, 1998. . . . . . . . . . . . . . 3
Consolidated Statements of Income for the
Three-Month and Six-Month Periods Ended
June 30, 1999 and 1998 . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the
Three-Month and Six-Month Period Ended June
30, 1999 and 1998. . . . . . . . . . . . . . . . 5
Consolidated Statements of Stockholders'
Equity for the Six-Month Period Ended
June 30, 1999. . . . . . . . . . . . . . . . . . 7
Notes to Consolidated Financial Statements . . . . 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . 10
PART II. OTHER INFORMATION
-----------------
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . 14
Item 2. Changes in Securities . . . . . . . . . . . . . . 14
Item 3. Defaults Upon Senior Securities . . . . . . . . . 14
Item 4. Submission of Matters to a Vote of
Security-Holders. . . . . . . . . . . . . . . . 14
Item 5. Other Information . . . . . . . . . . . . . . . . 14
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . 14
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . 15
PART 1 - FINANCIAL INFORMATION
COMMUNITY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
JUNE 30 DECEMBER 31
1999 1998
ASSETS (UNAUDITED) (AUDITED)
- ------ ------- -----------
CASH AND CASH EQUIVALENTS:
CASH $ 6,071 $ 8,134
INTEREST BEARING DEPOSITS 5,597 14,768
--------- ---------
TOTAL CASH AND CASH EQUIVALENTS 11,668 22,902
TIME DEPOSITS 0 0
SECURITIES AVAILABLE FOR SALE (amortized cost 51,292 52,102
of $52,107 (1999) and $52,171 (1998))
SECURITIES HELD TO MATURITY (estimated market value 19,389 16,921
of $19,354 (1999) and $17,132 (1998))
MORTGAGE-BACK & RELATED SECURITIES AVAILABLE FOR SALE 41,722 42,797
(amortized cost of $42,810 (1999) and $42,728(1998))
MORTGAGE-BACK & RELATED SECURITIES HELD TO MATURITY 394 442
(estimated market value of $414 (1999) and $464
(1998))
LOANS RECEIVABLE, net 174,876 157,207
FORECLOSED REAL ESTATE, net 432 436
REAL ESTATE HELD FOR SALE 0 0
ACCRUED INTEREST RECEIVABLE 2,930 3,094
PREMISES AND EQUIPMENT, net 7,931 7,635
PREPAID INCOME TAXES 24 0
DEFERRED INCOME TAXES 920 275
GOODWILL 4,276 4,456
CORE DEPOSIT INTANGIBLE 498 517
OTHER ASSETS 1,098 1,056
--------- ---------
TOTAL ASSETS $ 317,450 $ 309,840
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
DEPOSITS $ 222,962 $ 223,933
FEDERAL HOME LOAN BANK ADVANCES 42,241 44,100
REPURCHASE AGREEMENTS 8,631 4,296
FEDERAL FUNDS PURCHASED 7,700 0
ADVANCES FROM BORROWERS FOR TAXES AND INSURANCE 115 32
ACCRUED INTEREST PAYABLE 568 493
ACCRUED INCOME TAXES 0 58
OTHER LIABILITIES 804 1,662
--------- ---------
TOTAL LIABILITIES $ 283,021 $ 274,574
--------- ---------
STOCKHOLDERS' EQUITY:
COMMON STOCK, $.01 PAR VALUE PER SHARE:
7,000,000 SHARES AUTHORIZED; 2,223,645
AND 2,242,612 SHARES ISSUED AT JUNE 30, 1999
AND DECEMBER 31, 1998 $ 26 $ 26
ADDITIONAL PAID-IN CAPITAL 25,649 25,649
TREASURY STOCK (5,467) (5,273)
UNALLOCATED ESOP SHARES (1,114) (1,164)
SHARES HELD FOR MANAGEMENT RECOGNITION PLAN (461) (569)
RETAINED EARNINGS 17,054 16,593
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (1,258) 4
--------- ---------
TOTAL STOCKHOLDER EQUITY $ 34,429 $ 35,266
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 317,450 $ 309,840
========= =========
See accompanying notes to consolidated financial statements.
3
COMMUNITY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1999 1998 1999 1998
------------------ ----------------
INTEREST INCOME:
INTEREST ON LOANS $3,604 $3,467 $ 6,912 $ 7,000
INTEREST ON MORTGAGE-BACKED AND
RELATED SECURITIES 661 272 1,332 649
INTEREST ON INVESTMENTS AND INTEREST-
BEARING DEPOSITS 1,167 1,807 2,407 3,395
------ ------ ------- -------
TOTAL INTEREST INCOME $5,432 $5,546 $10,651 $11,044
------ ------ ------- -------
INTEREST EXPENSE:
INTEREST ON DEPOSITS $2,372 $2,445 $ 4,774 $ 4,828
INTEREST ON OTHER BORROWED FUNDS 679 738 1,321 1,487
------ ------ ------- -------
TOTAL INTEREST EXPENSE $3,051 $3,183 $ 6,095 $ 6,315
------ ------ ------- -------
NET INTEREST INCOME $2,381 $2,363 $ 4,556 $ 4,729
PROVISIONS FOR LOAN LOSSES $ 188 $ 132 $ 266 $ 268
------ ------ ------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES $2,193 $2,231 $ 4,290 $ 4,461
------ ------ ------- -------
NON-INTEREST INCOME:
SERVICE FEES $ 474 $ 332 $ 846 $ 654
INSURANCE AND ANNUITY COMMISSIONS 91 71 160 113
NET GAIN (LOSS) ON SALE OF SECURITIES 0 0 0 0
NET GAIN (LOSS) ON SALE OF FIXED ASSETS 0 0 0 0
OTHER 15 23 39 37
------ ------ ------- -------
TOTAL NON-INTEREST INCOME $ 580 $ 426 $ 1,045 $ 804
------ ------ ------- -------
NON-INTEREST EXPENSE:
COMPENSATION AND BENEFITS $1,170 $1,029 $ 2,290 $ 2,292
OCCUPANCY 155 117 298 237
EQUIPMENT AND FURNISHING 192 123 364 257
DATA PROCESSING 154 153 322 306
FEDERAL DEPOSIT INSURANCE PREMIUMS 42 23 84 45
PROFESSIONAL FEES 129 113 203 237
SUPPLIES 72 63 150 116
GOODWILL 100 105 200 195
OTHER 411 393 795 808
------ ------ ------- -------
TOTAL NON-INTEREST EXPENSE $2,425 $2,119 $ 4,706 $ 4,493
------ ------ ------- -------
INCOME BEFORE INCOME TAXES $ 348 $ 538 $ 629 $ 772
PROVISION FOR INCOME TAXES 87 191 168 271
------ ------ ------- -------
NET INCOME $ 261 $ 347 $ 461 $ 501
====== ====== ======= =======
BASIC EARNINGS PER SHARE $ 0.12 $ 0.16 $ 0.22 $ 0.23
====== ====== ======= =======
DILUTED EARNINGS PER SHARE $ 0.12 $ 0.15 $ 0.22 $ 0.22
====== ====== ======= =======
See accompanying notes to consolidated financial statements.
4
COMMUNITY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1999 1998 1999 1998
------------------ ----------------
OPERATING ACTIVITIES:
NET INCOME $ 261 $ 347 $ 461 $ 501
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING
ACTIVITIES:
PROVISION FOR DEPRECIATION 167 124 347 248
PROVISION FOR LOAN LOSSES 188 132 266 268
ACCRETION OF DISCOUNTS ON SECURITIES (10) (23) (30) (53)
AMORTIZATION OF PREMIUMS ON SECURITIES 37 (10) 80 23
AMORTIZATION OF GOODWILL & CORE DEPOSIT
INTANGIBLES 100 105 200 195
AMORTIZATION OF MANAGEMENT RECOGNITION
PLAN 54 63 108 125
(INCREASE) DECREASE IN ACCRUED INTEREST
RECEIVABLE 419 (608) 164 (397)
(INCREASE) DECREASE IN OTHER ASSETS (381) 373 (45) 307
(DECREASE) INCREASE IN ACCRUED INCOME TAXES (163) (48) (82) 52
(INCREASE) DECREASE IN DEFERRED INCOME
TAXES (502) (9) (645) (4)
INCREASE (DECREASE) IN ACCRUED INTEREST
PAYABLE (16) 47 75 225
INCREASE (DECREASE) IN OTHER LIABILITIES 51 27 (858) (324)
LOSS (GAIN) ON SALE OF SECURITIES AND
MORTGAGE-BACKED AND RELATED SECURITIES 0 0 0 0
LOSS (GAIN) IN SALE OF PREMISES AND
EQUIPMENT 0 0 0 0
-------- -------- ------- --------
NET CASH (USED IN) PROVIDED BY OPERATING
ACTIVITIES $ 205 $ 520 $ 41 $ 1,166
-------- -------- ------- --------
INVESTING ACTIVITIES:
PROCEEDS FROM SALES OF SECURITIES
AVAILABLE FOR SALE 0 0 0 0
PROCEEDS FROM SALES OF SECURITIES HELD
TO MATURITY 0 0 0 0
PROCEEDS FROM MATURITIES OF SECURITIES
HELD TO MATURITY 1,808 2,141 5,153 8,943
PROCEEDS FROM MATURITIES OF SECURITIES
AVAILABLE FOR SALE 3,338 8,385 18,018 21,479
PROCEEDS FROM SALES OF MORTGAGE-BACKED
AND RELATED SECURITIES AVAILABLE
FOR SALE 0 92 0 1,895
PROCEEDS FROM SALES OF MORTGAGE-BACKED
AND RELATED SECURITIES HELD TO MATURITY 0 50 0 250
PURCHASE OF MORTGAGE-BACKED AND RELATED
SECURITIES AVAILABLE FOR SALE (2,000) 0 (5,000) 0
PURCHASE OF SECURITIES AVAILABLE
FOR SALE (5,478) (16,291) (17,478) (39,965)
PURCHASE OF SECURITIES HELD TO MATURITY (2,816) (3,575) (7,366) (11,975)
PROCEEDS FROM MATURING TIME DEPOSITS 0 0 0 0
PURCHASE OF LOANS 0 0 0 0
DECREASE (INCREASE) IN LOAN RECEIVABLE (11,659) 2,290 (17,669) 7,205
PRINCIPAL COLLECTED ON MORTGAGE-BACKED
AND RELATED SECURITIES AVAILABLE
FOR SALE 2,203 2,153 4,523 3,441
PRINCIPAL COLLECTED ON MORTGAGE-BACKED
AND RELATED SECURITIES HELD TO
MATURITY 35 25 47 60
DECREASE (INCREASE) IN FORECLOSED REAL
ESTATE (90) 90 (4) (578)
PURCHASE OF PREMISES AND EQUIPMENT (174) (672) (643) (797)
PROCEEDS FROM SALE OF EQUIPMENT 0 0 0 0
PURCHASE OF FEDERAL HOME LOAN BANK STOCK 0 (94) 0 (305)
PURCHASE OF FEDERAL RESERVE BANK STOCK 0 0 0 0
PROCEEDS FROM SALE OF FEDERAL HOME LOAN
BANK STOCK 0 0 0 0
-------- -------- ------- --------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES $(14,833)$ (5,406) $(20,419)$(10,347)
-------- -------- ------- --------
5
COMMUNITY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1999 1998 1999 1998
------------------ ----------------
FINANCING ACTIVITIES:
NET INCREASE (DECREASE) IN DEPOSITS $ (3,251) $ 6,601 $ (971)$ 5,075
(DECREASE) INCREASE IN ADVANCES FROM
BORROWERS FOR TAXES AND INSURANCE 58 5 83 32
INCREASE (DECREASE) IN BORROWINGS 5,841 160 5,841 5,854
INCREASE IN REPURCHASE AGREEMENTS 5,169 0 4,335 0
PROCEEDS FROM SALE OF STOCK 0 0 0 0
UNEARNED EMPLOYEE STOCK OWNERSHIP PLAN 0 52 50 52
MARKET ADJUSTMENT OF EMPLOYEE STOCK
OWNERSHIP PLAN 0 0 0 0
PURCHASE OF SHARES FOR MRP 0 0 0 0
MARKET ADJUSTMENT OF MRP 0 0 0 0
STOCK OPTION PLAN 0 0 0 (60)
PURCHASE OF TREASURY STOCK (194) 0 (194) 0
-------- -------- -------- --------
NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES $ 7,623 $ 6,818 $ 9,144 $ 10,953
-------- -------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (7,005) 1,932 (11,234) 1,772
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 18,673 26,564 22,902 26,724
-------- -------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 11,668 $ 28,496 $ 11,668 $ 28,496
======== ======== ======== ========
SUPPLEMENTAL DISCLOSURES:
ADDITIONAL CASH FLOWS INFORMATION:
CASH PAID FOR:
INTEREST ON DEPOSITS, ADVANCES AND
OTHER BORROWINGS $ 3,304 $ 3,230 $ 6,170 $ 6,540
INCOME TAXES:
FEDERAL $ 250 $ 50 $ 250 $ 220
STATE $ 0 $ 20 $ 0 $ 20
SCHEDULE OF NONCASH INVESTING ACTIVITIES:
STOCK DIVIDENDS DISTRIBUTED BY THE
FEDERAL HOME LOAN BANK OF CHICAGO $ 0 $ 0 $ 0 $ 0
SECURITIES, MORTGAGE-BACKED AND RELATED
SECURITIES TRANSFERRED TO AVAILABLE
FOR SALE $ 0 $ 0 $ 0 $ 0
CHANGE IN UNREALIZED GAIN (LOSS)
ON SECURITIES AVAILABLE FOR SALE $ (1,482)$ (135) $ (1,892)$ (75)
CHANGE IN DEFERRED INCOME TAXES
ATTRIBUTED TO UNREALIZED GAIN (LOSS)
ON SECURITIES AVAILABLE FOR SALE $ 506 $ 57 $ 637 $ 21
6
COMMUNITY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
ACCUMULATED
ADDITIONAL UNALLOCATED OTHER COMPRE-
COMMON PAID-IN TREASURY ESOP MRP RETAINED COMPREHENSIVE HENSIVE
STOCK CAPITAL STOCK SHARES STOCK EARNINGS INCOME TOTAL INCOME
-----------------------------------------------------------------------------------------
BALANCE
DECEMBER 31, 1998 $26 $25,649 ($5,273) ($1,164) ($ 569) $16,593 $ 4 $35,266
COMPREHENSIVE INCOME
NET INCOME $461 $461 $ 461
-------
OTHER COMPREHENSIVE INCOME
UNREALIZED GAINS (LOSS)
ON SECURITIES $(1,903)
RELATED TAX EFFECTS 641
-------
OTHER COMPREHENSIVE INCOME $(1,262) $(1,262) $(1,262)
-------
COMPREHENSIVE INCOME $ (801)
SALE OF =======
COMMON STOCK $0
UNALLOCATED
ESOP SHARES $ 50 $ 50
SHARES HELD FOR
FOR MANAGEMENT
RECOGNITION PLAN $108 $108
TREASURY STOCK $(194) $(194)
ESOP SOP 93-6
ADJUSTMENT $0
STOCK OPTION PLAN $0
DIVIDENDS $0
-----------------------------------------------------------------------------
BALANCE
June 30, 1999 $26 $25,649 ($5,467) ($1,114) ($461) $17,054 $(1,258) $34,429
=============================================================================
See accompanying notes to consolidated financial statements.
7
COMMUNITY FINANCIAL CORP. and SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1999
(Unaudited)
(1) DESCRIPTION OF THE BUSINESS
Community Financial Corp. (the Company), an Illinois
corporation, is a bank holding company for Community Bank &
Trust, N.A., American Bancshares, Inc., Saline County State
Bank, Egyptian State Bank, and MidAmerica Bank of St. Clair
County. Community Financial Corp. is primarily engaged in
the business of directing, planning and coordinating the
business activities of its subsidiaries, which primarily
consist of accepting deposits from the general public
through its subsidiaries and investing these funds in loans
in their market areas and investment securities and
mortgage-backed securities.
(2) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial
statements were prepared in accordance with instructions
for Form 10-Q and, therefore, do not include all
information and footnotes necessary for a complete
presentation of financial position, results of operations,
changes in stockholders' equity, and cash flows in
conformity with generally accepted accounting principles.
However, all adjustments (consisting only of normal
recurring accruals) which, in the opinion of management,
are necessary for a fair presentation of the unaudited
consolidated financial statements, have been included in
the results of operations for the three months ended and
six months ended June 30, 1999 and 1998.
(3) PRINCIPLES OF CONSOLIDATION
The accompanying unaudited consolidated financial
statements include the accounts of Community Financial
Corp, Community Bank & Trust, N.A., American Bancshares,
Inc. and its wholly owned subsidiary, American Bank of
Illinois, Saline County State Bank, Egyptian State Bank,
and MidAmerica Bank of St. Clair County. All significant
intercompany items have been eliminated.
(4) EARNINGS PER SHARE
Income Shares Per Share
Amount
----------------------------------------
For the three months ended June 30, 1999
----------------------------------------
Basic earnings per share:
Income available to
Common Shareholders $ 261,000 2,093,519 $ 0.12
Effect of dilutive activities:
Stock options 0
Management recognition plan 0
Dilutive earnings per share:
Income available to
Common Shareholders $ 261,000 2,093,519 $ 0.12
For the six months ended June 30, 1999
--------------------------------------
Basic earnings per share:
Income available to
Common Shareholder $ 461,000 2,090,666 $ 0.22
Effect of dilutive activities:
Stock options 0
Management recognition plan 0
Dilutive earnings per share:
Income available to
Common Shareholders $ 461,000 2,090,666 $ 0.22
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- ----------------------------------------------------------------
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1999 AND DECEMBER
31, 1998.
Total assets increased by $ 7.7 million, or 2.5%, from $309.8
million at December 31, 1998 to $317.5 million at June 30, 1999.
Total cash and cash equivalents (which includes federal funds
sold) decreased by $11.2 million or 48.9% from $22.9 million at
December 31, 1998 to $11.7 million at June 30, 1999. The
decrease was primarily used to fund the increase in the loan
portfolio. The Company's loan portfolio increased by $17.7
million, or 11.3% from $157.2 million at December 31, 1998 to
$174.9 million at June 30, 1999. The increase was primarily due
to increases in the Automobile and Commercial portfolios. The
automobile portfolio increased $8.7 million, or 36.0%, from
$24.2 million at December 31, 1998 to $32.9 million at June 30,
1999 as a carry over of the first quarters aggressive campaign.
The commercial portfolio increased $7.2 million, or 13.3%, from
$54.3 million at December 31, 1998 to $61.5 million at June 30,
1999 as a result of planned expansion in the portfolio. During
the six months ended June 30, 1999, the Company's portfolio of
investment securities and mortgage-backed and related
securities, classified as available for sale pursuant to
Statement of Financial Accounting Standards ("SFAS") No. 115,
decreased capital by $1.3million (net of taxes) as a result of a
decrease in the market value. Total liabilities increased by
$8.3 million or 3.0% from $274.6 million at December 31, 1998 to
$282.9 million at June 30, 1999. The increase was primarily due
to an increase of $7.7 million in fed funds purchased used to
fund the increased loan demand.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS AND SIX
MONTHS ENDED JUNE 30, 1999 AND 1998.
NET INCOME. Net income decreased by $86,000 or 24.8%, from
$347,000 for the three months ended June 30, 1998, to $261,000
for the three months ended June 30, 1999. The decrease is partly
due to an increase in provisions for loan losses of $56,000 or
42.4%, from $132,000 for the three months ended June 30, 1998 to
$188,000 for the three months ended June 30, 1999. The increase
in the provision for loan losses was the result of recognizing
the risk in the growth of the loan portfolio during the three
months ended June 30, 1999 as the average loan volume increased
$15.6 million, or 10.1%, from $154.8 million for the three
months ended June 30, 1998 to $170.4 million for the three
months ended June 30, 1999.
Net income decreased by $40,000 or 8.0%, from $501,000 for the
six months ended June 30, 1998, to $461,000 for the six months
ended June 30, 1999. Net interest income decreased by $173,000,
or 3.7%, from $4.7 million for the six months ended June 30,
1998 to $4.6 million for the six months ended June 30, 1999.
Non-interest income increased $241,000, or 30.0%, which was
primarily the result of the increased loan growth. Non-interest
expense increased $213,000, or 4.7%, which was primarily due to
increased depreciation expense as a result of the system upgrade
that was completed in the forth quarter of 1998. Provision for
income taxes decreased $103,000, or 38.0%, due to a decrease of
$143,000 of taxable income and a lower tax rate which reflects
the effective tax rate reported for the calendar year 1998 which
was 29.6%.
NET INTEREST INCOME. Net interest income increased $18,000, or
0.8%, from $2.4 million for the three months ended June 30,
1998, to $2.4 million for the three months ended June 30, 1999.
The increase was due to an annualized increase of 17 basis
points in the spread on the yield of interest earning assets
minus the cost of interest bearing liabilities, from 2.66% for
the three months ended June 30, 1998 to 2.83% for the three
months ended June 30, 1999.
Net interest income decreased by $173,000, or 3.7%, from $4.7
million for the six months ended June 30, 1998 to $4.6 million
for the six months ended June 30, 1999. The decrease was
primarily the result of the average volume of interest bearing
liabilities increasing by $12.1 million, or 4.8% from $253.7
million for the six months ended June 30, 1998 to $265.8 million
for the six months ended June 30, 1999 as compared to the
average volume of interest earning assets increasing $1.9
million, or 0.7%, from $285.7 million for the six months ended
June 30, 1998 to $287.6 million for the six months ended June
30, 1999. On an annualized basis, the average cost of interest
bearing liabilities decreased by 4 basis points from 5.0% for
the six months ended June 30, 1998 to 4.6% for the six months
ended June 30, 1999 while the average yield on interest earning
assets decreased by 3 basis points from 7.7% for the six months
ended June 30, 1998 to 7.4% for the six months ended June 30,
1999.
8
INTEREST INCOME. Interest income decreased by $114,000, or
2.1%, from $5.5 million for the three months ended June 30, 1998
to $5.4 million for the three months ended June 30, 1999. The
decrease is primarily the result of rapid volume change and
decreasing yields. The average loan volume increased $15.6
million, or 10.1%, from $154.8 million for the three months
ended June 30, 1998 to $170.4 million for the three months ended
June 30, 1999 while the annualized yield decreased 0.5% from
9.0% to 8.5% for the three months ended June 30, 1998 and 1999
respectively. While the yield decreased by 50 basis points the
increased volume will generate a projected increase of $552,000
(on an annualized basis) in loan income. The reduction in rate
is a reflection of the competition in the company's lending
area. The average volume for mortgage-backed and related
securities, investments and interest-bearing deposits decreased
$3.2 million, or 2.6%, from $122.2 million for the three months
ended June 30, 1998 to $119.0 for the three months ended June
30, 1999 while the annualized yield decreased 7 basis points
from 6.8% to 6.1% for the three months ended June 30, 1998 and
1999 respectively. The decrease in the investment portfolio was
reinvested into the loan portfolio which has a higher yield than
the investment portfolio.
Interest income decreased by $393,000, or 3.6%, from $11.0
million for the six months ended June 30, 1998 to $10.7 million
for the six months ended June 30, 1998. The decrease is
primarily the result of rapid volume changes and decreasing
yields. The average loan volume decreased by $6.2 million , or
3.9%, from $161.0 million for the three months ended March 31,
1998 to $154.8 million for the three months ended June 30, 1998
compared to a $15.0 million, or 9.7%, increase from $155.4
million for the three months ended March 31, 1999 to $170.4
million for the three months ended June 30, 1999. The average
loan volume increased $5.0 million, or 3.2%, from $157.9 million
for the six months ended June 30, 1998 to $162.9 million for the
six months ended June 30, 1999 while the annualized yield
decreased 0.4% from 8.9% to 8.5% for the six months June 30,
1998 and 1999 respectively. The average volume for mortgage-
backed and related securities, investments and interest-bearing
deposits increased $1.9 million, or 1.6%, from $118.1 million
for the six months ended June 30, 1998 to $120.0 for the six
months ended June 30, 1999 while the annualized yields decreased
0.7%, from 6.9% to 6.2% for the three months ended June 30, 1998
and 1999 respectively.
INTEREST EXPENSE. Interest expense decreased by $132,000 or
4.1%, from $3.2 million for the three months ended June 30, 1998
to $3.1 million for the three months ended June 30, 1999. The
decrease is primarily the result of decreasing rates on the cost
of funds. The average volume of interest bearing deposits
increased $10.5 million or 5.1%, from $205.4 million for the
three months ended June 30, 1998 to $215.9 million for the three
months ended June 30, 1999. The annualized rate decreased 4
basis points, from 4.8% to 4.4% for the three months ended June
30, 1998 and 1999 respectively. The average volume on borrowed
funds decreased $659,000, or 1.3%, from $49.2 million for the
three months ended June 30, 1998 to $48.6 million for the three
months ended June 30, 1999. The annualized rate on borrowed
funds decreased 4 basis points, from 6.0% to 5.6% for the three
months ended June 30, 1998 and 1999 respectively.
Interest expense decreased by $220,000 or 3.5%, from $6.3
million for the six months ended June 30, 1998 to $6.1 million
for the six months ended June 30, 1999. The decrease is
primarily the result of decreasing rates on the cost of funds.
The average volume of interest bearing deposits increased $13.1
million or 6.4%, from $205.5 million for the six months ended
June 30, 1998 to $218.6 million for the six months ended June
30, 1999. The annualized rate decreased 0.3%, from 4.7% to 4.4%
for the six months ended June 30, 1998 and 1999 respectively.
The average volume on borrowed funds decreased $1.0 million, or
2.1%, from $48.2 million for the six months ended June 30, 1998
to $47.2 million for the six months ended June 30, 1999. The
annualized rate on borrowed funds decreased 0.6%, from 6.2% to
5.6% for the six months ended June 30, 1998 and 1999
respectively.
PROVISION FOR LOAN LOSSES. The Company established provisions
for loan losses of $188,000 and $132,000 for the three months
ended June 30, 1999 and 1998, respectively. For the first six
months ended June 30, 1999 and 1998, respectively, the provision
account has been charged $266,000 and $268,000. The increase in
the provision for loan losses was the result of recognizing the
risk in the growth of the loan portfolio during the three months
ended June 30, 1999 as the average loan volume increased $15.6
million, or 10.1%, from $154.8 million for the three months
ended June 30, 1998 to $170.4 million for the three months ended
June 30, 1999.
10
NONINTEREST INCOME. Noninterest income increased by $154,000,
from $426,000 for the three months ended June 30, 1998 to
$580,000 for the three months ended June 30, 1999. Of the
increase, $142,000 was due to increased service fees which is a
result of growth in both the loan portfolio and deposit
accounts.
Noninterest income increased by $241,000, from $804,000 for the
six months ended June 30, 1998 to $1.0 million for the six
months ended June 30, 1999. Of the increase, $192,000 was due to
increased service fees which is a result of growth in both the
loan portfolio and deposit accounts.
NONINTEREST EXPENSE. Noninterest expense increased by
$306,000, or 14.4%, from $2.1 million for the three months ended
June 30, 1998 to $2.4 million for the three months ended June
30, 1999. Of the increase, $141,000 was due to the increase in
compensation and benefits as the average number of employees has
increased by 11 from 117 to 128 for the three months ended June
30, 1998 and 1999 respectively. Equipment and furnishing expense
increased $69,000 due to the additional depreciation on the
system upgrade completed in the forth quarter of 1998.
Noninterest expense increased by $213,000, or 4.7%, from $4.5
million for the six months ended June 30, 1998 to $4.7 million
for the six months ended June 30, 1999. Of the increase, $61,000
was due to increased taxes on real estate from $237,000 to
$298,000 for the six months ended June 30, 1998 and 1999
respectively. In addition equipment and furnishing expense
increased $107,000, from $257,000 to $364,000 for the six months
ended June 30, 1998 and 1999, respectively, as the result of the
system upgrade completed in the forth quarter of 1998.
INCOME TAX EXPENSE. The Company's income tax expense was
estimated at $87,000 and $191,000 for the three months ended
June 30, 1999 and 1998, respectively. For the six months ended
June 30, 1999 and 1998, income taxes were estimated to be
$168,000 and $271,000, respectively. Provision for income taxes
decreased $103,000, or 38.0%, due to a decrease of $143,000 of
taxable income and applying a lower tax rate which reflects the
effective tax rate reported for the calendar year 1998 which was
29.6%.
FORWARD-LOOKING STATEMENTS
When used in this Form 10-Q, the words or phrases "will likely
result", "are expected to", "will continue", "is anticipated",
"estimate", "project" or similar expressions are intended to
identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties
including changes in economic conditions in our market area,
changes in policies by regulatory agencies, fluctuations in
interest rates, demand for loans in our market area, and
competition that could cause actual results to differ materially
from historical earnings and those presently anticipated or
projected. We wish to caution you not to place undue reliance
on any such forward-looking statements, which speak only as of
the date made. We wish to advise you that the factors listed
above could affect our financial performance and could cause our
actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods
in any current statements.
We do not undertake, and specifically disclaim any obligation,
to publicly release the result of any revisions which may be
made to any forward-looking statements to reflect events or
circumstances after the date of such statements or to reflect
the occurrence of anticipated or unanticipated events.
11
YEAR 2000 READINESS DISCLOSURE
The following information constitutes "Year 2000 Readiness
Disclosure" under the Year 2000 Information and Readiness
Disclosure Act.
A great deal of information has been disseminated about the
global computer crash that may occur in the year 2000. Many
computer programs that can only distinguish the final two digits
of the year entered (a common programming practice in earlier
years) are expected to read entries for the year 2000 as the
year 1900 and compute payment, interest or delinquency based on
the wrong date or are expected to be unable to compute payment,
interest or delinquency. Rapid and accurate data processing is
essential to the operations of the Company. Data processing is
also essential to most other financial institutions and many
other companies.
The Company has conducted a comprehensive review of its computer
system to identify applications that could be affected by the
"Year 2000" issue, and has developed an implementation plan to
address the issue. All of the material data processing of the
Company that could be affected by this problem is provided by
third party suppliers. Management closely monitors the progress
of the suppliers in resolving this potential problem and reports
the status of their progress to the Board of Directors on a
monthly basis. During the fourth quarter of 1998, the Company
conducted testing of its mission critical banking applications
through the third party data processing suppliers. The results
of the testing were favorable. The Company's contingency plan,
which addresses how it will operate should a natural disaster
affect any of the Company's operating segments or mission
critical data processing suppliers, was tested during the first
quarter of 1999 with the results being favorable. The Company
has developed a business resumption plan, which addresses how it
will resume operations should an uncontrollable situation, such
as power failure or loss of telecommunication, occur due to a
"Year 2000" issue. The plan is scheduled for testing in the
second quarter of 1999. The Company has developed a customer
awareness plan that is designed to promote and educate its
customers and the general public on the issues of how the
Company and the entire banking industry is preparing for the
"Year 2000". In the fourth quarter of 1998 the Company
completed a risk assessment of its commercial and agricultural
borrowers, with indebtedness to the company of $250,000 for
Community Bank & Trust, NA and $100,000 or more for all other
affiliates, concerning their compliance with the "Year 2000"
issue. The Company has projected that the expenses of these
plans should not exceed $163,000. The regulatory bodies, which
regulate the Company, have established detailed timeframes for
compliance with the Federal Financial Institutions Examination
Council (FFIEC) specified time tables for "Year 2000"
preparedness plans and the Company has achieved those
timeframes.
The Company believes that the potential effects on our internal
operations from Year 2000 issues can and will be addressed prior
to the Year 2000. However, as unforeseen circumstances arise,
the Year 2000 issue could disrupt our normal business
operations. The most reasonably likely worst case Year 2000
scenarios foreseeable at this time would include our not being
able to systematically process, in some combination, various
types of customer transactions. This could affect our ability
to accept deposits or process withdrawals, originate new loans
or accept loan payments in the automated manner we currently
utilize. Depending upon how long this scenario lasted, this
could have a material adverse effect on our operations. Our
Contingency Plan addresses alternative methods to enable us to
continue to offer basic services to our customers. The costs of
our Year 2000 project and our benchmark dates are based on our
best estimates, which are based on a number of assumptions
including future events. We cannot guarantee that these
estimates will be achieved at the cost disclosed or within the
time frames indicated.
12
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are deposits and proceeds
from maturing mortgage-backed and related securities and
principal and interest payments on loans and mortgage-backed and
related securities. While maturities and scheduled amortization
of mortgage-backed and related securities and loans are a
predictable source of funds, deposit flows and mortgage payments
are greatly influenced by general interest rates, economic
conditions, competition and other factors.
The primary investing activity of the Company is the purchase of
investment securities. Other investing activities include
origination of loans and purchases of mortgage-backed and
related securities. The primary financing activity of the
Company is accepting savings deposits and obtaining short-term
borrowings through FHLB advances.
The Company has other sources of liquidity if there is a need
for funds. The Company has a portfolio of investment securities
and mortgage-backed and related securities with an aggregate
market value of $93.0 million at June 30, 1999 classified as
available for sale. Another source of liquidity is the Bank's
ability to obtain advances from the FHLB of Chicago. In
addition, the Company maintains a significant portion of its
investments in interest-bearing deposits at other financial
institutions that will be available when needed.
The Company anticipates that it will have sufficient funds
available to meet commitments outstanding and to meet loan
demands. As of June 30, 1999, the Company's ratios of Tier
1 capital to average total assets was 10.0%, as compared to
the required level of 4.0%, respectively. The risk-based
capital ratio at that date was 18.5%, as compared to the
requirement of 8.0%.
13
PART II. OTHER INFORMATION
-----------------
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY-HOLDERS
The Company's Annual Meeting of Stockholders was held on
April 26, 1999. 1,829,254 shares of the Company's
common stock were represented at the Annual Meeting in
person or by proxy.
Stockholders voted in favor of the election of three
nominees for directors. The voting results for each
nominee were as follows:
Votes in Favor
Nominee of Election Votes Withheld
------- -------------- --------------
Wayne H. Benson 1,736,761 92,493
Gary L. Graham 1,736,835 92,419
Roger L. Haberer 1,736,835 92,419
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibit is filed herewith:
(a) Exhibit 27. Financial Data Schedule
14
SIGNATURES
Pursuant to the requirements of the 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 CORP.
Date: August 12, 1999 /s/ Wayne H. Benson
----------------------------
Wayne H. Benson
(Chief Executive Officer)
Date: August 12, 1999 /s/ Douglas W. Tompson
----------------------------
Douglas W. Tompson
(Principal Financial Officer)