SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
----- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
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
----- -----
Issuer's revenues for the most recent fiscal year: Approximately:
$23.8 million.
As of November 9, 2001, the Registrant had 2,147,470 shares of Common
Stock issued and outstanding.
Transitional Small Business Disclosure Format (Check one):
Yes No X
----- -----
CONTENTS
PART I. FINANCIAL INFORMATION PAGE
--------------------- ----
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2001
and December 31, 2000.........................................................................3
Consolidated Statements of Income for the Three-Month and Nine-Month
Periods Ended September 30, 2001 and 2000.....................................................4
Consolidated Statements of Cash Flows for the Three-Month and Nine-Month
Periods Ended September 30, 2001 and 2000.....................................................5
Consolidated Statements of Stockholders' Equity for the
Nine-Month Period Ended September 30, 2001....................................................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. Quantitative and Qualitative Disclosure About Market Risk......................................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
2
PART I - FINANCIAL INFORMATION
COMMUNITY FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
SEPTEMBER 30 DECEMBER 31
ASSETS 2001 2000
- ------ (UNAUDITED) (AUDITED)
----------- ---------
CASH AND CASH EQUIVALENTS:
CASH $ 3,909 $ 8,936
INTEREST BEARING DEPOSITS 37,496 11,507
--------- ---------
TOTAL CASH AND CASH EQUIVALENTS 41,405 20,443
SECURITIES AVAILABLE FOR SALE (amortized cost 22,080 57,073
of $21,994 (2001) and $57,407 (2000))
SECURITIES HELD TO MATURITY (estimated market value 859 909
of $872 (2001) and $917 (2000))
MORTGAGE-BACKED & RELATED SECURITIES AVAILABLE FOR SALE 7,959 10,909
(amortized cost of $7,887 (2001) and $11,036 (2000))
LOANS RECEIVABLE, net 109,877 171,542
FORECLOSED REAL ESTATE, net 137 458
ACCRUED INTEREST RECEIVABLE 1,564 2,854
PREMISES AND EQUIPMENT, net 2,884 7,149
PREPAID INCOME TAXES 810 677
DEFERRED INCOME TAXES 182 698
GOODWILL 0 3,578
CORE DEPOSIT INTANGIBLE 0 589
OTHER ASSETS 599 818
--------- ---------
TOTAL ASSETS $ 188,356 $ 277,697
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
DEPOSITS $ 143,950 $ 232,785
FEDERAL HOME LOAN BANK ADVANCES 5,000 6,000
REPURCHASE AGREEMENTS 5,343 2,766
ADVANCES FROM BORROWERS FOR TAXES AND INSURANCE 16 30
ACCRUED INTEREST PAYABLE 326 499
OTHER LIABILITIES 841 727
--------- ---------
TOTAL LIABILITIES $ 155,476 $ 242,807
========= =========
STOCKHOLDER EQUITY:
COMMON STOCK, $.01 PAR VALUE PER SHARE:
7,000,000 SHARES AUTHORIZED; 2,147,470
SHARES ISSUED AT SEPTEMBER 30, 2001
AND DECEMBER 31, 2000 $ 26 $ 26
ADDITIONAL PAID-IN CAPITAL 25,641 25,641
TREASURY STOCK (6,263) (6,263)
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) 104 (303)
RETAINED EARNINGS 13,372 15,789
--------- ---------
TOTAL STOCKHOLDER EQUITY $ 32,880 $ 34,890
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDER EQUITY $ 188,356 $ 277,697
========= =========
See accompanying notes to consolidated financial statements.
3
COMMUNITY FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2001 2000 2001 2000
--------------------------- ---------------------------
INTEREST INCOME:
INTEREST ON LOANS $ 2,354 $ 2,688 $ 7,101 $ 8,080
INTEREST ON MORTGAGE-BACKED AND RELATED SECURITIES 87 515 372 1,614
INTEREST ON INVESTMENTS AND INTEREST-BEARING DEPOSITS 732 565 2,115 1,669
----------- ----------- ----------- -----------
TOTAL INTEREST INCOME $ 3,173 $ 3,768 $ 9,588 $ 11,363
----------- ----------- ----------- -----------
INTEREST EXPENSE:
INTEREST ON DEPOSITS $ 1,589 $ 1,895 $ 5,063 $ 5,245
INTEREST ON OTHER BORROWED FUNDS 118 396 336 1,489
----------- ----------- ----------- -----------
TOTAL INTEREST EXPENSE $ 1,707 $ 2,291 $ 5,399 $ 6,734
----------- ----------- ----------- -----------
NET INTEREST INCOME $ 1,466 $ 1,477 $ 4,189 $ 4,629
PROVISIONS FOR LOAN LOSSES 1,396 1,835 $ 1,845 $ 2,174
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES $ 70 $ (358) $ 2,344 $ 2,455
----------- ----------- ----------- -----------
NON-INTEREST INCOME:
SERVICE FEES $ 248 $ 266 $ 740 $ 887
INSURANCE AND ANNUITY COMMISSIONS 54 92 158 264
NET GAIN (LOSS) ON SALE OF SECURITIES (20) 0 (20) (4)
OTHER 17 53 44 87
----------- ----------- ----------- -----------
TOTAL NON-INTEREST INCOME $ 299 $ 411 $ 922 $ 1,234
----------- ----------- ----------- -----------
NON-INTEREST EXPENSE:
COMPENSATION AND BENEFITS $ 562 $ 667 $ 1,680 $ 2,137
OCCUPANCY 84 96 267 264
EQUIPMENT AND FURNISHINGS 108 129 321 317
DATA PROCESSING 99 80 311 221
FEDERAL DEPOSIT INSURANCE PREMIUMS 96 37 268 110
PROFESSIONAL FEES (24) 156 413 527
SUPPLIES 12 54 62 106
GOODWILL 0 0 0 0
OTHER 403 271 863 803
----------- ----------- ----------- -----------
TOTAL NON-INTEREST EXPENSE $ 1,340 $ 1,490 $ 4,185 $ 4,485
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES $ (971) $ (1,437) $ (919) $ (796)
PROVISION (BENEFIT) FOR INCOME TAXES (321) (431) (298) (224)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE DISPOSAL OF BUSINESS SEGMENTS $ (650) $ (1,006) $ (621) (572)
DISPOSAL OF BUSINESS SEGMENTS
EQUITY IN EARNINGS (LOSS) OF SOLD SUBSIDIARIES 0 25 (152) 34
GAIN (LOSS) ON SALE OF SUBSIDIARIES 152 0 (1,644) 0
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (498) $ (981) $ (2,417) $ (538)
OTHER COMPREHENSIVE INCOME (LOSS), NET OF INCOME TAX
UNREALIZED GAIN (LOSS) ON SECURITIES AVAILABLE FOR
SALE ARISING IN PERIOD 44 591 407 576
----------- ----------- ----------- -----------
COMPREHENSIVE INCOME (LOSS) $ (454) $ (390) $ (2,010) $ 38
=========== =========== =========== ===========
WEIGHTED SHARES OUTSTANDING FOR BASIC EARNINGS PER SHARE 2,147,470 2,121,524 2,147,470 2,122,860
BASIC EARNINGS (LOSS) PER SHARE $ (0.23) $ (0.46) $ (1.13) $ (0.25)
=========== =========== =========== ===========
WEIGHTED SHARES OUTSTANDING FOR DILUTED EARNINGS PER SHARE 2,162,643 2,121,524 2,153,526 2,122,860
DILUTED EARNINGS (LOSS) PER SHARE $ (0.23) $ (0.46) $ (1.12) $ (0.25)
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
4
COMMUNITY FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2001 2000 2001 2000
--------------------- ---------------------
OPERATING ACTIVITIES:
NET INCOME (LOSS) $ (498) $ (981) $ (2,417) $ (538)
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
PROVISION FOR DEPRECIATION 119 138 356 309
PROVISION FOR LOAN LOSSES 1,396 1,834 1,845 2,174
ACCRETION OF DISCOUNTS ON SECURITIES (11) (8) (35) (24)
AMORTIZATION OF PREMIUMS ON SECURITIES 3 14 8 47
DECREASE IN ACCRUED INTEREST RECEIVABLE 73 (195) 511 107
DECREASE IN OTHER ASSETS (206) (130) 111 314
(DECREASE) INCREASE IN ACCRUED INCOME TAXES (736) (674) (173) (717)
DECREASE IN DEFERRED INCOME TAXES (127) 272 59 504
INCREASE (DECREASE) IN ACCRUED INTEREST PAYABLE 41 89 112 140
INCREASE (DECREASE) IN OTHER LIABILITIES 451 127 279 (516)
STOCK DIVIDEND ON FHLB STOCK (42) (43) (136) (84)
DIVESTMENT OF SUBSIDIARIES 0 0 1,644 0
LOSS (GAIN) ON SALE OF SECURITIES AND MORTGAGE-BACKED
AND RELATED SECURITIES 20 0 20 4
LOSS (GAIN) IN SALE OF PREMISES AND EQUIPMENT 0 0 0 (7)
-------- -------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 483 $ 443 $ 2,184 $ 1,713
-------- -------- -------- --------
INVESTING ACTIVITIES:
PROCEEDS FROM SALES OF SECURITIES HELD TO MATURITY 0 416 0 416
PROCEEDS FROM MATURITIES OF SECURITIES HELD TO MATURITY 0 0 50 210
PROCEEDS FROM MATURITIES OF SECURITIES AVAILABLE FOR SALE 16,515 0 35,015 105
PROCEEDS FROM SALES OF MORTGAGE-BACKED AND RELATED
SECURITIES AVAILABLE FOR SALE 439 9 439 330
PURCHASE OF SECURITIES AVAILABLE FOR SALE (6,496) 0 (23,996) 0
PROCEEDS FROM DIVESTMENTS 0 0 11,600 0
DECREASE IN LOAN RECEIVABLE 737 2,514 4,070 7,088
PRINCIPAL COLLECTED ON MORTGAGE-BACKED AND RELATED
SECURITIES 852 1,613 2,222 4,238
DECREASE (INCREASE) IN FORECLOSED REAL ESTATE (9) (188) 242 (262)
PURCHASE OF PREMISES AND EQUIPMENT 0 0 (5) (74)
PROCEEDS FROM SALE OF EQUIPMENT 0 3 0 10
-------- -------- -------- --------
NET CASH PROVIDED BY INVESTING ACTIVITIES $ 12,038 $ 4,367 $ 29,637 $ 12,061
-------- -------- -------- --------
5
COMMUNITY FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
2001 2000 2001 2000
----------------------- -----------------------
FINANCING ACTIVITIES:
NET INCREASE (DECREASE) IN DEPOSITS $ (1,339) $ (3,423) $ (919) $ 8,808
INCREASE IN ADVANCES FROM BORROWERS
FOR TAXES AND INSURANCE (40) (4) (14) 26
INCREASE (DECREASE) IN FHLB ADVANCES 0 (6,439) 0 (21,509)
INCREASE (DECREASE) IN REPURCHASE AGREEMENTS 608 65 2,576 (2,250)
UNEARNED EMPLOYEE STOCK OWNERSHIP PLAN 0 0 0 28
AMORTIZATION OF MRP 0 0 0 115
---------- ---------- ---------- ----------
CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES $ (771) $ (9,801) $ 1,643 $ (14,782)
---------- ---------- ---------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS 11,750 (4,991) 33,464 (1,008)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 29,655 10,267 7,941 6,284
---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 41,405 $ 5,276 $ 41,405 $ 5,276
========== ========== ========== ==========
SUPPLEMENTAL DISCLOSURES:
ADDITIONAL CASH FLOWS INFORMATION:
CASH PAID FOR:
INTEREST ON DEPOSITS, ADVANCES AND
OTHER BORROWINGS $ 1,748 $ 2,381 $ 5,511 $ 6,874
INCOME TAXES:
FEDERAL $ 0 $ 0 $ 45 $ 250
STATE $ 0 $ 0 $ 0 $ 0
SCHEDULE OF NONCASH INVESTING ACTIVITIES:
STOCK DIVIDENDS DISTRIBUTED BY THE
FEDERAL HOME LOAN BANK OF CHICAGO $ 42 $ 43 $ 136 $ 84
6
COMMUNITY FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN TREASURY UNALLOCATED MRP RETAINED COMPREHENSIVE COMPREHENSIVE
STOCK CAPITAL STOCK ESOP SHARES STOCK EARNINGS INCOME/(LOSS) TOTAL INCOME/(LOSS)
------------------------------------------------------------------------------------------------------
BALANCE
DECEMBER 31, 2000 $ 26 $ 25,641 $ (6,263) $ 0 $ 0 $ 15,789 $ (303) $ 34,890
COMPREHENSIVE INCOME/(LOSS)
NET INCOME/(LOSS) $ (2,417) $ (2,417) $ (2,417)
OTHER COMPREHENSIVE INCOME
UNREALIZED GAINS (LOSS)
ON SECURITIES $ 617
RELATED TAX EFFECTS $ (210)
--------
OTHER COMPREHENSIVE INCOME $ 407 $ 407 $ 407
--------
COMPREHENSIVE INCOME/(LOSS) $ (2,010)
========
BALANCE
September 30, 2001 $ 26 $ 25,641 $ (6,263) $ 0 $ 0 $ 13,372 $ 104 $ 32,880
=======================================================================================
See accompanying notes to consolidated financial statements.
7
COMMUNITY FINANCIAL CORP.
AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 2001
(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. ("CB&T").
The Company is primarily engaged in the business of directing,
planning and coordinating the business activities of its subsidiary,
which primarily consist of accepting deposits from the general
public through the subsidiary and investing these funds in loans in
its market area and in investment securities and mortgage-backed
securities.
(2) BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for Form 10-QSB 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 nine months ended September 30, 2001 and 2000.
(3) PRINCIPLES OF CONSOLIDATION
The accompanying unaudited consolidated financial statements include
the accounts of Community Financial Corp. and Community Bank &
Trust, N.A. All significant intercompany items have been eliminated.
8
(5) EARNINGS PER SHARE
For the three months ended September 30, 2001
---------------------------------------------
Income Shares Per Share
Amount
Basic earnings (loss) per share
Income (loss) available to
common shareholders $ (497,318) 2,147,470 $ (0.23)
Effect of dilutive activities:
Stock Options 15,173
Dilutive earnings (loss) per share
Income (loss) available to
common shareholders $ (497,318) 2,162,643 $ (0.23)
For the nine months ended September 30, 2001
--------------------------------------------
Income Shares Per Share
Amount
Basic earnings (loss) per share
Income (loss) available to
common shareholders $ (2,417,652) 2,147,470 $ (1.13)
Effect of dilutive activities:
Stock Options 6,056
Dilutive earnings (loss) per share
Income (loss) available to
common shareholders $ (2,417,652) 2,153,526 $ (1.12)
See accompanying notes to consolidated financial statements.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2001 AND
DECEMBER 31, 2000.
The Company's financial condition decreased during the period as reflected by
a decrease in total assets of $89.3 million, or 32.2% from $277.7 million at
December 31, 2000 to $188.4 million at September 30, 2001. The decrease was
primarily due to the sales of The Egyptian State Bank, which reduced assets
by $39.1 million, and Mid-America Bank of St. Clair County, which reduced
assets by $30.0 million, both of which were completed on February 28, 2001,
and by the sale of American Bank of Illinois in Highland on April 20, 2001,
which reduced assets by $33.9 million. After restating the December 31, 2000
financial statements to remove the effects of the sale of the subsidiaries,
the Company's financial position remained unchanged as total assets
increased, net of sale proceeds of $11.6 million, by $2.1 million, or 1.1%
from $186.3 million at December 31, 2000 (restated) to $188.4 million at
September 30, 2001.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS AND NINE MONTHS
ENDED SEPTEMBER 30, 2001 AND 2000.
NET INCOME. Net income increased $483,000, or 49.2% from a loss of $981,000
for the three months ended September 30, 2000 to a loss of $498,000 for the
three months ended September 30, 2001. The increase is primarily due to a
reduction of $439,000, or 23.9% in provision for loan losses from $1.8
million for the three months ended September 30, 2000 to $1.4 million for the
three months ended September 30, 2001.
The Company reported a net loss of $2.4 million for the nine months ended
September 30, 2001. This represents a decrease of $1.9 million, which was
primarily due to the loss on the sale of the subsidiaries of $1.8 million and
associated expenses.
NET INTEREST INCOME. Net interest income decreased $11,000, or 0.7% from $1.5
million for the three months ended September 30, 2000 to $1.5 million for the
three months ended September 30, 2001.
Net interest income decreased $440,000, or 9.5% from $4.6 million for the
nine months ended September 30, 2000 to $4.2 million for the nine months
ended September 30, 2001.
INTEREST INCOME. Interest income decreased by $595,000, or 15.8% from $3.8
million for the three months ended September 30, 2000 to $3.2 million for the
three months ended September 30, 2001. Interest income on loans decreased by
$334,000, or 12.4% from $2.7 million for the three months ended September 30,
2000 to $2.4 million for the three months ended September 30, 2001. The
decrease is primarily due to a volume decrease as the average balance of
loans decreased $11.4 million, or 9.2% from $123.5 million for the quarter
ended September 30, 2000 (restated) to $112.1 million for the quarter ended
September 30, 2001. The decrease in interest income on investment securities
and interest bearing deposits of $261,000, or 24.2% was primarily due to a
volume decrease. The average balance of securities and interest bearing
deposits decreased $12.7 million, or 16.5% from $77.1 million for the quarter
ended September 30, 2000 (restated) to $64.4 million for the quarter ended
September 30, 2001.
Interest income decreased $1.8 million, or 15.8% from $11.4 million for the
nine months ended September 30, 2000 to $9.6 million for the nine months
ended September 30, 2001. Of the decrease, $979,000 was primarily due to the
loan portfolio reflecting a volume decrease of $11.6 million, or 9.2% from
$125.8 million for the nine months ended September 30, 2000 (restated) to
$114.2 million for the nine months ended September 30, 2001. The decrease in
interest income on securities and interest bearing deposits of $796,000, or
24.2% was due to a volume decrease on the average balance of securities and
interest bearing deposits of $19.2 million, or 24.3%. The average balance of
securities and interest bearing deposits were $79.1 million for the nine
months ended September 30, 2000 (restated) to $59.9 million for the nine
months ended September 30, 2001. In addition, the yield on securities and
interest-bearing deposits has decreased 78 basis points, from 6.2% for the
nine months ended September 30, 2000 to 5.4% for the nine months ended
September 30, 2001.
10
INTEREST EXPENSE. Interest expense decreased by $584,000, or 25.5% from $2.3
million for the three months ended September 30, 2000 to $1.7 million for the
three months ended September 30, 2001. Interest expense on deposits decreased
by $306,000, or 16.1% from $1.9 million for the three months ended September
30, 2000 to $1.6 million for the three months ended September 30, 2001. The
decrease was primarily due to a volume decrease on average deposits of $6.6
million, or 4.5% from $145.4 million for the three months ended September 30,
2000 (restated) to $138.8 million for the three months ended September 30,
2001. Interest expense on borrowings decreased by $278,000, or 70.2% from
$396,000 for the three months ended September 30, 2000 to $118,000 for the
three months ended September 30, 2001. The primary reason for the decrease
was due to the reduction in the average balance of borrowings of $14.1
million, or 56.9% from $24.8 million for the three months ended September 30,
2000 (restated) to $10.7 million for the three months ended September 30,
2001.
Interest expense decreased by $1.3 million, or 19.4% from $6.7 million for
the nine months ended September 30, 2000 to $5.4 million for the nine months
ended September 30, 2001. The decrease was due to interest expense on
borrowings having a volume decrease on the average balance of borrowings of
$24.1 million, or 72.8% from $33.1 million for the nine months ended
September 30, 2000 (restated) to $9.0 million for the nine months ended
September 30, 2001.
PROVISION FOR LOAN LOSSES. The Company established provisions for loan losses
of $1.4 million and $1.9 million for the three months ended September 30,
2001 and 2000, respectively. Of the $1.4 million, $1.2 million was due to a
partial charge off of a commercial loan that is undergoing a reorganization
plan. Of the $1.9 million, $1.5 million was for a secured commercial loan
charge off which involved a customer who was indicted by the United States
for alleged involvement in a Ponzi scheme. The security which the U.S.
Department of Justice seized included commercial real estate, vehicles and
inventory that were pledged. The Company and its attorneys are working with
the federal prosecutor in locating, securing and liquidating the assets used
to secure the loans. The projected recovery of any part of the charged off
loan is undeterminable at this time. The increase in the provision for loan
losses was based on the quarterly analysis of the allowance for loan and
lease loss reserves indicating that additional reserves were needed. The
review process applies different risk ratings to the concentrations of credit
within the total loan portfolio. In addition, the process takes into
consideration the effect that changing economic conditions has had on
individual credits in the past, present and future. The increase in the
provision for loan losses was the result of identifying a need to add to the
reserves.
The Company established provisions for loan losses of $1.8 million and $2.2
million for the nine months ended September 30, 2001 and 2000, respectively.
Of the $1.8 million, $1.2 million was due to a partial charge off of a
commercial loan that is undergoing a reorganization plan. Of the $2.2
million, $1.5 million was for a secured commercial loan charge off which
involved a customer who was indicted by the United States for his alleged
involvement in a Ponzi scheme. The security which the U.S. Department of
Justice seized included commercial real estate, vehicles and inventory that
were pledged as security for a commercial loan. The Company and its attorneys
are working with the federal prosecutor in locating, securing and liquidating
the assets used to secure the loan. The projected recovery of any part of the
charged off loan is undeterminable at this time. In addition, analysis of the
allowance for loan and lease loss reserves indicated that additional reserves
were needed. The review process applies different risk ratings to the
concentrations of credit within the total loan portfolio. In addition, the
process takes into consideration the effect that changing economic conditions
has had on individual credits in the past, present and future. The increase
in the provision for loan losses was the result of identifying a need to add
to the reserves.
NONINTEREST INCOME. Noninterest income decreased by $112,000, or 27.3% from
$411,000 for the three months ended September 30, 2000 to $299,000 for the
three months ended September 30, 2001. The decrease was primarily a result of
a decrease of $38,000, or 41.3% in the commissions generated from annuity and
brokerage sales, as a result of the volatility of the stock market, from
$92,000 for the three months ended September 30, 2000 to $54,000 for the
three months ended September 30, 2001 as a result of the volatility of the
stock market.
Noninterest income decreased by $312,000, or 25.3% from $1.2 million for the
nine months ended September 30, 2000 to $922,000 for the nine months ended
September 30, 2001. The decrease was primarily the result of a decrease of
$147,000, or 16.6% in service fees from $887,000 for the nine months ended
September 30, 2000 to $740,000 for the nine months ended September 30, 2001.
This decrease reflects the decrease in loan fees as the result of the
decreasing loan portfolio. In addition, commissions generated from annuity
and brokerage sales decreased $106,000, or 40.2% from
11
$264,000 for the nine months ended September 30, 2000 to $158,000 for the
nine months ended September 30, 2001.
NONINTEREST EXPENSE. Noninterest expense decreased by $150,000, or 10.1% from
$1.5 million for the three months ended September 30, 2000 to $1.3 million
for the three months ended September 30, 2001. Of the decrease, salaries and
employee benefits decreased $105,000, or 15.7% from $667,000 for the three
months ended September 30, 2000 to $562,000 for the three months ended
September 30, 2001 primarily as the result of the Employee Stock Ownership
Plan ("ESOP") being terminated after December, 2000 and the final Management
Recognition Plan ("MRP") allocation being made in 2000.
Noninterest expense decreased by $300,000, or 6.7% from $4.5 million for the
nine months ended September 30, 2000 to $4.2 million for the nine months
ended September 30, 2001. Of the decrease, salaries and employee benefits
decreased $457,000, or 21.4% from $2.1 million for the nine months ended
September 30, 2000 to $1.7 million for the nine months ended September 30,
2001 primarily as the result of the ESOP being terminated after December,
2000 and the final MRP allocation being made in 2000.
INCOME TAX EXPENSE (BENEFIT). The Company's income tax expense (benefit) was
estimated at ($321,000) and ($431,000) for the three months ended September
30, 2001 and 2000, respectively. For the nine months ended September 30, 2001
and 2000, income taxes were estimated to be a benefit of ($298,000) and
($224,000), respectively. The losses from the sale of the subsidiary banks
are considered capital losses and do not reduce income from operations for
income tax purposes.
DISPOSAL OF BUSINESS SEGMENTS. For the nine months ended September 30, 2001,
the Company has sold three of its business segments which has resulted in a
loss of $1.6 million. The equity in the earnings for the nine months ended
September 30, 2001 was reduced by $152,000.
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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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are deposits and proceeds from
maturing mortgage-backed and related securities, 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 Federal Home Loan Bank advances.
The Company has other sources of liquidity if there is a need for funds. The
Company has a portfolio of unpledged investment securities and mortgage-
backed and related securities with an aggregate market value of
$5.4 million at September 30, 2001 classified as available for sale. Another
source of liquidity is the ability of CB&T to obtain advances from the
Federal Home Loan Bank of Chicago. In addition, the Company maintains a
significant portion of its investments in interest-bearing deposits at other
financial institutions that would be available if needed.
The Company anticipates that it will have sufficient funds available to meet
commitments outstanding and to meet loan demand. As of September 30, 2001,
the Company's ratios of Tier I capital to adjusted total assets was 17.4%,
as compared to the required level of 3.0%. The risk-based capital ratio at
that date was 32.1%, as compared to the requirement of 8.0%.
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PART II. OTHER INFORMATION
-----------------
ITEM 1. LEGAL PROCEEDINGS
There are no pending regulatory proceedings to which the
Company or its subsidiary CB&T is a party to which any of
their properties is expected to result in a material loss.
From time to time, CB&T is a party to various legal
proceedings incident to its business.
Stuart Chris Engel, an established customer (since March
1999), was indicted in the United States District Court,
Central District of Illinois, in criminal case number
00-20046 on August 18, 2000 for his alleged involvement
in a conspiracy to commit mail fraud, wire fraud, money
laundering, and conducting financial transactions with the
proceeds of illegal activity. In Count 21 of the indictment,
as a result of the preceding criminal charges the U. S. seeks
to forfeit any and all interests the 19 named co-conspirators
may have individually and or in association with each other,
or others, in and to all properties, real and personal,
involved in the aforestated offenses and property traceable
to such property equal to at least $12,500,000. The assets
subject to the government's forfeiture proceeding include
assets of Engel and others that have been pledged as security
for loans made by the Company. These assets include
commercial and personal real estate, vehicles, equipment,
and inventory. The Company is vigorously contesting the
forfeiture and is seeking to recover against the assets
securing its loans, which assets total approximately $1.7
million. The Company and its attorneys are working with the
federal prosecutor in locating, securing, and liquidating the
assets of Engel used to secure his loans. The Company has
been unsuccessful, to date, in its efforts to realize any
value for its collateral. Therefore, the projected recovery
of any part of the charged-off loans is undeterminable at
this time.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
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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: November 13, 2001 /s/ Wayne H. Benson
-------------------
Wayne H. Benson
(President and Chief Executive Officer)
Date: November 13, 2001 /s/ Douglas W. Tompson
----------------------
Douglas W. Tompson
(Chief Financial Officer)
15