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UNITED STATES
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, 1996
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 018261
COMMUNITY FINANCIAL CORPORATION
(Exact name of small business issuer as specified in its charter)
VIRGINIA 54-1532044
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
38 North Central Ave., Staunton, Va. 24401
(Address of principal executive offices zip code)
(540) 886-0796
(Issuer's telephone number, including area code)
Check whether the issuer (1) 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 issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
Number of shares of Common Stock, par value per share, $.01, outstanding at
the close of business on September 30, 1996: 1,272,048.
Transitional Small Business Disclosure Format (Check one)
Yes No X
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COMMUNITY FINANCIAL CORPORATION
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Statements of Financial Condition
at September 30, 1996 (unaudited) and
March 31, 1996 ................................................1
Consolidated Statements of Income for the
Three Months Ended September 30, 1996 and 1995
and for the Six Months Ended September 30, 1996
and 1995 (unaudited)...........................................2
Consolidated Statements of Cash Flows for the
Six Months Ended September 30, 1996 and
1995 (unaudited)...............................................3
Notes to Unaudited Interim Consolidated
Financial Statements...........................................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................6
PART II. OTHER INFORMATION - II-1
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COMMUNITY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
September 30, March 31,
1996 1996
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash (including interest bearing
deposits of approximately
$1,221,000 and $1,147,000) $ 3,440,039 $ 3,673,085
Securities
Held to maturity 5,819,636 6,067,778
Available for sale 2,009,123 1,754,445
Investment in Federal Home Loan
Bank stock, at cost 1,350,000 1,350,000
Loans receivable, net 142,962,373 141,738,895
Real estate owned 60,431 123,322
Property and equipment, net 3,600,707 3,692,043
Accrued interest receivable
Loans 874,883 853,275
Investments 160,104 167,142
Prepaid expenses and other assets 514,054 372,636
$160,791,350 $159,792,621
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $110,375,397 $109,501,461
Advances from Federal Home Loan
Bank 26,000,000 27,000,000
Advance payments by borrowers for
taxes and insurance 107,876 142,737
Other liabilities 1,928,405 1,248,443
Total Liabilities 138,411,678 137,892,641
Stockholders' Equity
Preferred stock $.01 par value,
authorized 3,000,000 shares,
none outstanding
Common stock, $.01 par value,
authorized 10,000,000 shares,
1,272,048 and 1,269,698 shares
outstanding 12,720 12,697
Additional paid in capital 4,661,011 4,651,634
Retained earnings 16,519,902 16,206,237
Net unrealized gain on securities
available for sale 1,186,039 1,029,412
Total Stockholders' Equity 22,379,672 21,899,980
$160,791,350 $159,792,621
</TABLE>
See accompanying notes to consolidated financial statements.
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COMMUNITY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
---------------------- ----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $3,005,534 $2,955,785 $5,990,408 $5,795,316
Investment securities 119,681 111,995 246,519 209,178
Other 25,474 27,500 57,690 63,793
Total interest income 3,150,689 3,095,280 6,294,617 6,068,287
INTEREST EXPENSE
Deposits 1,251,220 1,259,144 2,494,925 2,422,986
Borrowed money 349,117 378,212 738,314 766,202
Total interest expense 1,600,337 1,637,356 3,233,239 3,189,188
NET INTEREST INCOME 1,550,352 1,457,924 3,061,378 2,879,099
PROVISION FOR LOAN LOSSES 69,647 42,500 102,638 67,500
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,480,705 1,415,424 2,958,740 2,811,599
NONINTEREST INCOME
Service charges, fees
and commissions 128,668 107,870 244,571 210,883
Miscellaneous 1,126 7,246 2,732 13,019
Total noninterest
income 129,794 115,116 247,303 223,902
NONINTEREST EXPENSE
Compensation & benefits 298,884 288,143 584,615 564,920
Occupancy 98,921 94,494 198,243 184,587
Data processing 80,719 77,527 174,775 155,165
Federal insurance premium 732,469 58,986 794,100 119,793
Miscellaneous 251,459 167,051 426,542 357,888
Total noninterest
expense 1,462,452 686,201 2,178,275 1,382,353
INCOME BEFORE TAXES 148,047 844,339 1,027,768 1,653,148
INCOME TAXES 53,548 316,596 383,482 620,622
NET INCOME $ 94,499 $ 527,743 $ 644,286 $1,032,526
EARNINGS PER SHARE $ 0.08 $ 0.42 $ 0.51 $ 0.83
DIVIDENDS PER SHARE $ 0.13 $ 0.10 $ 0.26 $ 0.20
</TABLE>
See accompanying notes to consolidated financial statements.
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COMMUNITY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
September 30,
------------------------
1996 1995
----------- -----------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 644,286 $1,032,526
Adjustments to reconcile net income to
net cash provided by operating activities
Provision for loan losses 102,638 67,500
Depreciation 110,838 106,703
Amortization of premium and accretion
of discount on securities, net (3,624) (6,783)
Decrease in net deferred loan fees (33,542) (49,897)
Increase (Decrease) in deferred income
taxes 28,596 (67,521)
Increase in other assets (155,988) (159,682)
Increase in other liabilities 616,505 70,909
Gain on sale of assets (6,391) (1,245)
Proceeds from sale of loans 338,000 415,000
Loans originated for resale (371,000) (415,000)
Net cash provided by operating activities 1,270,318 992,510
INVESTING ACTIVITIES
Proceeds from maturities of
investment securities 750,000 1,750,000
Purchases of investment securities (498,281) (2,249,570)
Net increase in loans (1,288,295) (5,340,466)
Purchases of property and equipment (19,502) (22,149)
Net cash provided (absorbed) by
investing activities (1,056,078) (5,862,185)
FINANCING ACTIVITIES
Dividends paid (330,622) (249,766)
Net increase in deposits 873,936 4,496,303
Proceeds from advances and other
borrowed money 31,000,000 73,000,000
Repayments of advances and other
borrowed money (32,000,000) (73,000,000)
Proceeds from issuance of common stock 9,400 111,280
Net cash provided (absorbed) by
financing activities (447,286) 4,357,817
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (233,046) (511,858)
CASH AND CASH EQUIVALENTS-
beginning of period 3,673,085 4,582,983
CASH AND CASH EQUIVALENTS-
end of period $3,440,039 $4,071,125
</TABLE>
See accompanying notes to consolidated financial statements.
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COMMUNITY FINANCIAL CORPORATION
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
NOTE 1. - BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
The accompanying consolidated financial statements include the accounts
of Community Financial Corporation and its wholly-owned subsidiary, Community
Federal Savings Bank. All significant intercompany balances and transactions
have been eliminated in consolidation.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for fair presentation have been
included. Operating results for the three and six months ended September 30,
1996, are not necessarily indicative of the results that may be expected for
the year ending March 31, 1997.
NOTE 2. - EARNINGS PER SHARE
Earnings per share is computed based on the weighted average number of
shares of common stock outstanding during each period including the assumed
exercise of dilutive stock options, and is retroactively adjusted for stock
dividends and stock splits. Earnings per share for the three months ended
September 30, 1996 and 1995 have been determined by dividing net income by the
weighted number of shares of common stock outstanding during these periods
(1,272,048 and 1,250,950). Earnings per share for the six months ended
September 30, l996 and 1995 have been determined by dividing net income by the
weighted number of shares of common stock outstanding during these periods
(1,271,404 and 1,246,439).
NOTE 3. - STOCKHOLDERS' EQUITY
The following table presents the Savings Bank's capital levels at
September 30, 1996, relative to the federal regulatory requirements at that
date:
<TABLE>
<CAPTION>
Amount Percent Actual Actual Excess
Required Required Amount Percent Amount
-------- -------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
Tangible Capital $2,402,000 1.50% $18,678,000 11.67% $16,276,000
Core Capital 4,803,000 3.00 18,678,000 11.67 13,875,000
Risk-based Capital 8,771,000 8.00 19,495,000 17.78 10,724,000
</TABLE>
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NOTE 3. - STOCKHOLDERS' EQUITY (cont.)
Capital distributions by the Savings Bank are limited by federal
regulations ("Capital Distribution Regulation"). Capital distributions are
defined to include, in part, dividends, stock repurchases and cash-out
mergers. The Capital Distribution Regulation permits a "Tier 1" association
to make capital distributions during a calendar year up to 100% of its net
income to date plus the amount that would reduce by one-half its surplus
capital ratio at the beginning of the calendar year. Any distributions in
excess of that amount require prior notice to the Office of Thrift Supervision
("OTS") with the opportunity for the OTS to object to the distribution. A Tier
1 association is defined as an association that has, on a pro forma basis
after the proposed distribution, capital equal to or greater than the OTS
capital requirement and has not been deemed by the OTS to be "in need of more
than normal supervision". The Savings Bank is currently classified as a Tier
1 institution for these purposes. The Capital Distribution Regulation
requires that associations provide the applicable OTS District Director with a
30-day advance written notice of all proposed capital distributions whether or
not advance approval is required by the regulation.
NOTE 4. - SUPPLEMENTAL INFORMATION - STATEMENT OF CASH FLOWS
Total interest paid for the three months ended September 30, 1996 and
1995 was $1,564,454 and $1,585,662. Total interest paid for the six months
ended September 30, 1996 and 1995 was $3,097,528 and $3,178,344. Total income
taxes paid for the three months ended September 30, 1996 and 1995 was $548,660
and $549,220. Total income taxes paid for the six months ended September 30,
1996 and 1995 was $548,660 and $619,220.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
FINANCIAL CONDITION
The Company's total assets increased $1.0 million to $160.8 million at
September 30, 1996, due primarily to an increase in loans receivable of $1.2
million. The increase in loans receivable was due primarily to the
origination of variable rate mortgage loans. Deposits increased $900,000
to $110.4 million at September 30, 1996, from $109.5 million at March 3l,
l996. The increase in deposits was used to fund the increase in loans.
Stockholders' equity increased to $22.4 million at September 30, 1996, from
$21.9 million at March 31, 1996, due primarily to earnings for the six month
period ended September 30, 1996 and an adjustment in the market value of
Federal Home Loan Mortgage Corporation stock, which was partially offset by
two payments of $0.13 per share each in cash dividends. At September 30, 1996,
the Bank's non-performing assets totalled $329,000 or 0.21% of assets. This
compares to non-performing assets of $824,000 or 0.54% of total assets as of
March 31, 1996. The non-performing assets consisted of two single family
residential properties, one of which was a construction loan, which were more
than ninety days past due. Also included in non-performing assets is one
single family residential property acquired through foreclosure and various
consumer loans. Based on current market values of the collateral securing
these loans, management anticipates no significant losses in excess of the
reserves for losses previously recorded.
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Historically, the Bank has maintained its liquid assets above the
minimum requirements imposed by federal regulations and at a level believed
adequate to meet requirements of normal daily activities, repayment of
maturing debt and potential deposit outflows. Cash flow projections are
regularly reviewed and updated to assure that adequate liquidity is provided.
As of September 30, 1996, the Bank's liquidity ratio (liquid assets as a
percentage of net withdrawable savings and current borrowings) was 7.07%,
which exceeds the regulatory requirement.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1996 and 1995.
- ----------------------------------------------
General. Net income for the three months ended September 30, 1996 was
$94,499 compared to $527,743 for the three months ended September 30, 1995,
due primarily to a one-time special assessment based on the SAIF insured
deposits held by the bank on March 31, 1995 and partially offset by an
increase in net interest income. Income before taxes decreased to $148,047 for
the three months ended September 30, 1996 from $844,339 for the three months
ended September 30, 1995.
Interest Income. Total interest income increased to $3,150,689 for the
three months ended September 30, 1996, from $3,095,280 for the three months
ended September 30, 1995, due primarily to an increase in the balances of
loans and investments.
Interest Expense. Total interest expense decreased to $1,600,337 for
the quarter ended September 30, 1996, from $1,637,356 for the quarter ended
September 30, 1995. Interest on deposits decreased to $1,251,220 for the
quarter ended September 30, 1996 from $1,259,144 for the quarter ended
September 30, 1995 due primarily to an decrease in the average cost of
deposits from 4.62% at September 30, 1995 compared to 4.58% at September 30,
1996. Interest expense on borrowed money decreased to $349,117 for the quarter
ended September 30, 1996, from $378,212 for the quarter ended September 30,
1995, due to a decrease in the cost of borrowed money.
Provision for Loan Losses. The provision for loan losses increased to
$69,647 for the three months ended September 30, 1995 from $42,500 for the
three months ended September 30, 1995. The increase in the provision for loan
losses is attributable primarily to an increase in the number of delinquent
consumer loans. Due to the growth in the loan portfolio and the economic
uncertainty presently existing, management feels it is prudent to monitor the
unallocated reserves and make additions as appropriate to provide for possible
unforeseen losses.
Noninterest Income. Noninterest income increased to $129,794 for the
three months ended September 30, 1996, from $115,116 for the three months
ended September 30, 1995. NOW account charges increased as a result of
increased account volume.
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Noninterest Expense. Noninterest expense increased to $1,462,452 for
the three months ended September 30, 1996, from $686,201 for the three months
ended September 30, 1995. The deposits of savings associations, such as
Community Federal, are presently insured by the Savings Association Insurance
Fund ("SAIF"), which together with the Bank Insurance Fund ("BIF"), are the
two insurance funds administered by the Federal Deposit Insurance Corporation.
Financial institutions which are members of the BIF are experiencing
substantially lower deposit insurance premiums because the BIF has achieved
its required reserves. In order to help eliminate this disparity and any
competitive disadvantage due to disparate deposit insurance premium schedules,
legislation to recapitalize the SAIF was enacted in September 1996.
The legislation requires a special one-time assessment of approximately
65.7 cents per $100 of SAIF insured deposits held by the Bank at March 31,
1995. The premium resulted in an increase to the federal insurance premium of
$670,765 and a tax affected charge to earnings of approximately $416,000
during the quarter ended September 30, 1996. The legislation is intended to
fully recapitalize the SAIF fund so that commercial bank and thrift deposits
will be charged the same FDIC premiums beginning October 1, 1996. As of such
date deposit insurance premiums for highly rated institutions, such as the
Bank, have been eliminated.
The Bank, however, will continue to be subject to an assessment to fund
repayment of the Financial Corporation ("FICO") obligations. It is anticipated
that the FICO assessment for SAIF insured institutions will be 6.5 cents per
$100 of deposits while BIF insured institutions will pay 1.3 cents per $100 of
deposits until the year 2000 when the assessment will be imposed at the same
rate on all FDIC insured institutions. Accordingly, as a result of the
reduction of the SAIF assessment and the resulting FICO assessment, the annual
after tax decrease in assessment costs is expected to be approximately
$110,000 based upon a September 30, 1996 assessment base.
Miscellaneous expenses increased primarily due to advertising expenses
related to checking accounts and professional expenses in regard to loan
policy and procedures.
Taxes. Taxes decreased to $53,548 for the three months ended September
30, l996, from $316,596 for the three months ended September 30, 1995, due to
the decrease in income before taxes.
Six Months Ended September 30, 1996 and 1995
- --------------------------------------------
General. Net income for the six months ended September 30, 1996 was
$644,286 compared to $1,032,526 for the six months ended September 30, l995.
Interest Income. Total interest income increased to $6,294,617 for the
six months ended September 30, 1996, from $6,068,287 for the six months ended
September 30, 1995, due primarily to an increase in the balances of loans and
investments.
Interest Expense. Total interest expense increased to $3,233,239 for
the six months ended September 30, 1996, from $3,189,188 for the six months
ended September 30, 1995. Interest on deposits increased to $2,494,925 for
the six months ended September 30, 1996, from $2,422,986 for the same period
last year due primarily to an increase in deposit balances which was offset by
a decrease in the cost of deposits. Interest expense on borrowed money
decreased to $738,314 for the six months ended September 30, 1996, from
$766,202 for the six months ended September 30, 1995, due primarily to lower
rates on borrowings from the Federal Home Loan Bank of Atlanta.
Provision for Loan Losses. The provision for loan losses increased to
$102,638 for the six months ended September 30, 1996, from $67,500 for the
same period last year due primarily to an increase in chargeoffs on consumer
loans. Due to the growth in the loan portfolio and the economic uncertainty
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presently existing, management feels it is prudent to monitor unallocated
reserves and make additions as appropriate to provide for possible unforeseen
losses.
Noninterest Income. Noninterest income increased to $247,303 for the
six months ended September 30, 1996, from $223,902 for the six months ended
September 30, 1995, due to an increase in the fees and service charges on
checking accounts as the volume of accounts increased.
Noninterest Expenses. Noninterest expenses increased to $2,178,275 for
the six months ended September 30, 1996, from $1,382,353 for the same period
last year. The increase is related primarily to the one-time SAIF premium
discussed above.
Taxes. Taxes decreased to $383,482 for the six months ended
September 30, 1996, from $620,622 for the six months ended September 30, 1995,
due to a decrease in income before taxes for the six months ended
September 30, 1996.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable.
Item 2. Changes in Securities
Not Applicable.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
Item 5. Other Information
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
Not Applicable.
Exhibit 3 - Amended and Restated Articles of Incorporation
and Bylaws
Exhibit 10 - 1996 Incentive Plan
Exhibit 27 - Financial Data Schedule
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SIGNATURES
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 CORPORATION
Date: October 31, 1996
By: (s) R. Jerry Giles
-------------------------------
R. Jerry Giles
Chief Financial Officer
(Duly Authorized Officer)
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AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
COMMUNITY FINANCIAL CORPORATION
ARTICLE I
NAME
The name of the corporation is Community Financial Corporation.
ARTICLE II
CAPITAL STOCK
Paragraph A. The aggregate number of shares of stock which the
Corporation shall have the authority to issue and the par value per share are
as follows:
Number of
Class Shares Par Value
-------------- ---------- ----------
Common Stock 10,000,000 $0.01
Preferred Stock 3,000,000 $0.01
Paragraph B. No holders of any class of stock of the Corporation shall
have any preemptive or other preferential right to purchase or subscribe to
(i) any shares of any class of stock of the Corporation, whether now or
hereafter authorized, (ii) any warrants, rights or options to purchase any
such stock, or (iii) any obligations convertible into any such stock or into
warrants, rights or options to purchase any such stock.
Paragraph C. The holders of the Common Stock shall, to the exclusion of
the holders of any other class of stock of the Corporation, have the sole and
full power to vote for the election of directors and for all other purposes
without limitation except only as otherwise provided in any articles of
amendment applicable to any series of Preferred Stock, and as otherwise
expressly provided by the then existing statutes of Virginia. The holders of
the Common Stock shall have one vote for each share of Common Stock held by
them. Except as may be set forth in any articles of amendment applicable to
shares of Preferred Stock, the holders of the Common Stock shall be entitled
to receive the net assets of the Corporation upon dissolution.
Paragraph D. Authority is expressly vested in the Board of Directors to
divide the Preferred Stock into, and issue the same in, series and, to the
fullest extent permitted by law, to fix and determine the preferences,
limitations and relative rights of the shares of any series so established,
and to provide for the issuance thereof.
Prior to the issuance of any shares of a series of Preferred Stock, the
Board of Directors shall establish such series by adopting a resolution
setting forth the designation and number of shares of the series and the
preferences, limitations and relative rights thereof, and the Corporation
shall file with the State Corporation Commission articles of amendment as
required by law, and the State Corporation Commission shall have issued a
certificate of amendment.
ARTICLE III
INDEMNIFICATION AND LIMITS ON LIABILITY
OF DIRECTORS AND OFFICERS
Paragraph A. The Corporation shall indemnify any Director or Officer
made a Party to a Proceeding (including without limitation any Proceeding by
or in the right of the Corporation in which the Director or Officer is
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adjudged liable to the Corporation) because he or she is or was a Director or
Officer of the Corporation against any Liability incurred in the Proceeding to
the fullest extent permitted by Virginia law, as it may be amended from time
to time.
Paragraph B. The Corporation shall not indemnify a Director or Officer
under Paragraph A above (unless authorized or ordered by a court) unless in
each specific case a determination pursuant to Virginia law, as it may be
amended from time to time, has been made that indemnification is permissible
under the circumstances. The termination of a Proceeding by judgment, order,
settlement or conviction is not, of itself, determinative that Director or
Officer is not entitled to indemnification under this Article III.
Paragraph C. Expenses incurred by a Director or Officer in a Proceeding
shall be paid by the Corporation in advance of the final disposition of the
Proceeding if:
1. The Director or Officer furnishes the Corporation a written
statement of his or her good faith belief that he or she is
entitled to indemnification pursuant to this Article III;
2. The Director or Officer furnishes the Corporation a written
undertaking, executed personally or on his or her behalf, to repay
the advance if it is ultimately determined that he or she did not
meet the standard for indemnification pursuant to this Article
III; and
3. A determination pursuant to Virginia law, as it may be amended
from time to time, is made that the facts then known to those
making the determination would not preclude indemnification under
this Article III.
The undertaking required by subsection 2 of this Paragraph C shall be
an unlimited general obligation of the Director or Officer but need not be
secured and may be accepted without reference to his or her financial ability
to make repayment.
Paragraph D. The indemnification provided by this Article III shall not
be exclusive of any other rights to which any Director or Officer may be
entitled, including without limitation rights conferred by applicable law and
any right under policies of insurance that may be purchased and maintained by
the Corporation or others, even as to liabilities against which the
Corporation would not have the power to indemnify such Director or Officer
under the provisions of this Article III.
Paragraph E. The Corporation may purchase and maintain insurance, at
its sole expense, in such amounts and on such terms and conditions as the
Board of Directors may deem reasonable, against all liabilities or losses it
may sustain in consequence of the indemnification provided for in this Article
III.
Paragraph F. The Board of Directors shall have the power but not the
obligation, generally and in specific cases, to indemnify employees and agents
of the Corporation to the same extent as provided in this Article III with
respect to Directors or Officers. The Board of Directors is hereby empowered
by a majority vote of a quorum of disinterested Directors to contract in
advance to indemnify any Director or Officer. The Board of Directors is
further empowered, by majority vote of a quorum of disinterested Directors, to
cause the Corporation to contract in advance to indemnify any person who is
not a Director or Officer who was or is a party to any Proceeding, by reason
of the fact that he or she is or was an employee or agent of the Corporation,
or was serving at the request of the Corporation as Director, Officer,
employee or agent of another corporation, partnership, joint venture trust,
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employee benefit plan or other enterprise, to the same extent as if such
person were a Director or Officer.
Paragraph G. To the full extent that Virginia law, as it exists on the
date hereof or may hereafter be amended, permits the elimination of the
liability of Directors and Officers for damages in any proceeding brought by
or in the right of the Corporation or brought by or on behalf of the
shareholders of the Corporation, such liability is hereby eliminated.
Paragraph H. In this Article III:
"Director" means an individual who is or was a director of the
Corporation or an individual who, while a director of the Corporation,
is or was serving at the Corporation's request as a director, officer,
partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan,
or other enterprise. A director is considered to be serving an employee
benefit plan at the Corporation's request if his duties to the
Corporation also impose duties on, or otherwise involve services by, him
to the plan or to participants in or beneficiaries of the plan.
"Director" includes the estate or personal representative of a director.
"Officer" means an individual who is or was an officer of the
Corporation or an individual who is or was serving at the Corporation's
written request as a director, officer, partner, trustee, employee or
agent of another foreign or domestic corporation, partnership, joint
venture, trust, employee benefit plan, or other enterprise. An officer
is considered to be serving an employee benefit plan at the
Corporation's request if his duties to the Corporation also impose
duties on, or otherwise involve services by, him to the plan or to
participants in or beneficiaries of the plan. "Officer" includes the
estate or personal representative of an officer. Except as set forth
above "Officer" does not include officers of corporations controlled by
the Corporation.
"Expenses" includes but is not limited to counsel fees.
"Liability" means the obligation to pay a judgment, settlement,
penalty, fine, including without limitation any excise tax assessed with
respect to an employee benefit plan, and reasonable Expenses incurred
with respect to a Proceeding.
"Party" includes an individual who was, is, or is threatened to be
made a named defendant or respondent in any Proceeding.
"Proceeding" means any threatened, pending or completed action,
suit, or proceeding, whether civil, criminal, administrative or
investigative and whether formal or informal.
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ARTICLE IV
DIRECTORS
Paragraph A. Except as otherwise fixed by any articles of amendment
adopted by the Board of Directors pursuant to Paragraph D of Article II
relating to the rights of the holders of any series of Preferred Stock to
elect additional directors under specified circumstances, the number of the
directors of the Corporation shall be fixed from time to time by or pursuant
to the Bylaws of the Corporation. The initial directors, whose terms shall
expire at the first shareholders' meeting at which directors are elected,
shall be:
Richard E. Bonin James R. Cooke, Jr.
905 Blue Ridge Drive 25 North Central Avenue
Staunton, Virginia 24401 Staunton, Virginia 24401
Jane C. Hickok Charles F. Andersen
P. O. Box 309 6 Hickory Hill Lane
Verona, Virginia 24482 Fishersville, Virginia 22939
Dale C. Smith Charles W. Fairchilds
Route 2, Box 361 125 Alta Drive
Staunton, Virginia 24401 Stuarts Draft, Virginia 24477
Kenneth L. Elmore Thomas W. Winfree
P. O. Box 2607 6 Waverly Green
Staunton, Virginia 24402-2607 Staunton, Virginia 24401
Commencing with the first shareholders' meeting at which directors are
elected, the directors, other than those who may be elected by the holders of
any series of Preferred Stock, shall be classified, with respect to the time
for which they severally hold office, into three classes, as nearly equal in
number as possible, one class to be originally elected for a term expiring at
the annual meeting of stockholders to be held in 1997, another class to be
originally elected for a term expiring at the annual meeting of stockholders
to be held in 1998 and another class to be originally elected for a term
expiring at the annual meeting of stockholders to be held in 1999, with each
class to hold office until its successor is elected and qualified. At each
annual meeting of the stockholders of the Corporation, the successors of the
class of directors whose term expires at that meeting shall be elected to hold
office for a term expiring at the annual meeting of stockholders held in the
third year following the year of their election.
There shall not be cumulative voting in elections of directors.
Paragraph B. Advance notice of stockholder nominations for the election
of directors shall be given in the manner provided in the Bylaws of the
Corporation.
Paragraph C. Except as otherwise fixed by any articles of amendment
adopted by the Board of Directors pursuant to Paragraph D of Article II
relating to the rights of the holders of any series of Preferred Stock to
elect directors under specified circumstances, newly created directorships
resulting from any increase in the number of directors and any vacancies on
the Board of Directors resulting from death, resignation, disqualification,
removal or other cause shall be filled only by the affirmative vote of a
majority of the remaining directors then in office, even though less than a
quorum of the Board of Directors. Any director elected in accordance with the
preceding sentence shall hold office until the next annual meeting of
shareholders and until such director's successor shall have been elected and
qualified. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
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ARTICLE V
BYLAW AMENDMENTS
The Board of Directors shall have power to make, alter, amend and repeal
the Bylaws of the Corporation except so far as any Bylaw of the Corporation
adopted by the stockholders shall otherwise provide. Any Bylaws made by the
directors under the powers conferred hereby may be altered, amended or
repealed by the directors or by the stockholders.
ARTICLE VI
SPECIAL VOTING PROVISIONS
Paragraph A. An amendment to the Articles of Incorporation of the
Corporation shall be approved if a majority of the votes entitled to be cast
by each voting group entitled to vote on such action are cast in favor of such
action.
Paragraph B. Subject to the right of holders of any series of Preferred
Stock to elect or remove directors under specified circumstances, at a special
meeting of shareholders called expressly for that purpose, any director may be
removed for cause by a vote of the holders of a majority of the shares
entitled to vote at an election of directors.
Paragraph C. Any merger or share exchange to which the Corporation is a
party or any direct or indirect sale, lease, exchange or other disposition of
all or substantially all of the Corporation's property, otherwise than in the
usual and regular course of business, shall be approved if a majority of the
votes entitled to be cast by each voting group entitled to vote on such action
are cast in favor of such action.
This Paragraph C shall not affect the power of the Board of Directors to
condition its submission of any plan of merger, share exchange or direct or
indirect sale, lease, exchange or other disposition of all or substantially
all of the Corporation's property, otherwise than in the usual and regular
course of business, on any basis, including the requirement of a greater vote.
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BYLAWS
OF
COMMUNITY FINANCIAL CORPORATION
ARTICLE I
Shareholder Matters
Section 1.1. Annual Meetings.
A. The annual meeting of the shareholders of the Corporation
shall be held at such a place as may be decided by, the Board of Directors on
a date during the month of July, August or September of each and every year,
the exact date, place and hour to be fixed by the Board of Directors.
B. At the annual meeting of the shareholders of the
Corporation, Directors shall be elected and reports of the affairs of the
Corporation shall be received and considered. Any other business may be
transacted which is within the powers of the shareholders, except that, if any
shareholder shall bring new business before the annual meeting, the
shareholder must give advance notice as set forth in Section 1.6 of these
Bylaws.
C. The Board of Directors may designate any place, either
within or without the Commonwealth of Virginia, as the place of meeting for
any annual meeting or for any special meeting. If no place is designated by
the Board, the place of meeting shall be the principal office of the
Corporation.
Section 1.2. Special Meetings. Unless otherwise prescribed by law
or by the Articles of Incorporation, special meetings of shareholders, for any
purpose or purposes, may be called at any time by the Chairman of the Board,
the President or a majority of the Board of Directors, and shall be called by
the Chairman of the Board, the President, or the Secretary upon the written
request of the holders of not less than one-tenth of all the outstanding
capital stock of the Corporation entitled to vote at the meeting; provided
that a special meeting of shareholders to vote on any amendment to the
articles of Incorporation or to vote on a matter relating to a change of
control of the Corporation may be called only by the Board of Directors. Such
written request shall state the purpose or purposes of the meeting and shall
be delivered to the Principal office of the Corporation addressed to the
Chairman of the Board, the President or the Secretary.
Section 1.3. Notice of Meetings. Notice of the time and place of
every annual meeting or special meeting shall be mailed to each Shareholder of
record entitled to vote at the meeting at his address as it appears on the
records of the Corporation not less than ten (10) nor more than sixty (60)
days before the date of such meeting (except as a different time may be
specified by law).
Section 1.4. Quorum. A majority of the votes entitled to be cast
on a matter by a voting group constitutes a quorum of such voting group for
action on such matter. If there is not a quorum at the time for which a
meeting shall have been called, the meeting may be adjourned from time to time
by a majority of the shareholders present or represented by proxy without
notice, other than by announcement at the meeting, until there is a quorum.
Section 1.5. Voting. Except as the Articles of Incorporation
otherwise provide, at any meeting of the shareholders, each outstanding share,
regardless of class, is entitled to one vote on each matter voted on at a
shareholders' meeting.
Section 1.6. New Business. At an annual meeting of shareholders
only such new business shall be conducted, and only such proposals shall be
acted upon, as shall have been properly brought before the meeting. For any
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<PAGE> 19
new business proposed by management to be properly brought before the annual
meeting, such new business shall be approved by the Board of Directors, either
directly or through its approval of proxy solicitation materials related
thereto, and shall be stated in writing and filed with the Secretary of the
Corporation at least 20 days before the date of the annual meeting, and all
business so stated, proposed and filed shall be considered at the annual
meeting. Any shareholder may make any other proposal at the annual meeting
and the same may be discussed and considered, but unless properly brought
before the meeting such proposal shall not be acted upon at the meeting. For
a proposal to be properly brought before an annual meeting by a shareholder,
the shareholder must have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a shareholder's notice must be
delivered to or received at the principal executive offices of the
Corporation, not less than 20 days prior to the meeting; provided, however,
that in the event that less than 30 days' notice of the date of the meeting is
given to shareholders (which notice shall be accompanied by a proxy or
information statement which describes each matter proposed by the Board of
Directors to be acted upon at the meeting), notice by the shareholder to be
timely must be so received not later than the close of business on the 10th
day following the day on which such notice of the date of the annual meeting
was mailed. A shareholder's notice to the Secretary shall set forth as to
each matter the shareholder proposes to bring before the annual meeting (a) a
brief description of the proposal desired to be brought before the annual
meeting, (b) the name and address of the shareholder proposing such business,
and (c) the class and number of shares of the Corporation which are owned of
record by the shareholder. Notwithstanding anything in these Bylaws to the
contrary, no business shall be conducted at an annual meeting except in
accordance with the procedures set forth in this Section 1.6.
Section 1.7. Order of Business. All meetings of shareholders shall
be conducted in accordance with such rules as are prescribed by the Chairman
of the meeting and the Chairman shall determine the order of business at all
meetings of the shareholders.
Section 1.8. Inspectors. The Board of Directors, in advance of any
meeting of shareholders, may, but shall not be required to, appoint one or
more inspectors to act at such meeting or any adjournment thereof. If any of
the inspectors so appointed shall fail to appear or act, the Chairman of the
meeting may appoint one or more inspectors. The inspectors shall determine
the number of shares of capital stock of the Corporation outstanding and the
voting power of each, the number of shares represented at the meeting, the
existence of a quorum, the validity and effect of proxies, and shall receive
votes, ballots or consents, hear and determine all challenges and questions
arising in connection with the right to vote, count and tabulate all votes,
ballots or consents, determine the results, and do such acts as are proper to
conduct the election or vote with fairness to all shareholders. On request of
the Chairman of the meeting, the inspectors shall make a report of any
challenge, request or matter determined by them and shall execute a
certificate of any fact found by them. No director or candidate for the
office of director shall act as an inspector of an election of directors.
Inspectors need not be shareholders.
ARTICLE II
Directors
Section 2.1. General Powers. The business and affairs of the
Corporation shall be managed under the direction of the Board of Directors
and, except as otherwise expressly provided by law or by the Articles of
Incorporation, or by these Bylaws, all of the powers of the Corporation shall
be exercised by or under the authority of said Board of Directors.
Section 2.2. Number and Qualification. The Board of Directors shall
consist of eight (8) Directors.
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Section 2.3. Election of Directors. The Directors shall be elected
at the annual meeting of shareholders, and shall hold their offices until
their successors are elected in accordance with the Articles of Incorporation.
Nominations for the election of Directors shall be given in the manner
provided in Section 2.9.
Section 2.4. Vacancies. The Board of Directors shall consist of
three classes and, when the number of Directors is changed, the Board of
Directors shall determine the class or classes to which the increased or
decreased number of Directors shall be apportioned; provided, that each class
shall be equal or as nearly equal in size as possible; provided, further, that
no decreases in the number of Directors shall affect the term of any Director
then in office.
Any vacancy occurring on the Board of Directors may be filled by the
affirmative vote of a majority of the remaining Directors although less than a
quorum of the Board of Directors. A Director elected to fill a vacancy shall
be elected to serve until the next election of Directors by the shareholders.
Any directorship to be filled by reason of an increase in the number of
Directors may be filled by election by the Board of Directors for a term of
office continuing only until the next election of Directors by the
shareholders.
Section 2.5. Honorary and Advisory Directors. The Board may appoint
to the position of Honorary Director or the position of Advisory Director such
person or persons as it deems appropriate. Honorary Directors shall be
entitled to receive notice of, and to attend all meetings of the Board, but
they shall not be Directors and shall not be entitled to vote, nor shall they
be counted in determining a quorum of the Board. Advisory Directors shall be
entitled only to notice of meetings of Advisory or other Boards of the
Corporation to which they shall be appointed. Honorary and Advisory Directors
shall receive such compensation as may be authorized by the Board of Directors
for attendance at meetings of Advisory or other Boards to which such Advisory
or Honorary Directors are appointed.
Section 2.6. Meetings of Directors. Meetings of the Board of
Directors shall be held at places within or without the Commonwealth of
Virginia and at times fixed by resolution of the Board of Directors, or upon
call of the Chairman of the Board of Directors or the President. The
Secretary, or officer performing his duties, shall give at least twenty-four
(24) hours' notice by telegraph, letter, telephone or in person, of all
meetings of the Directors; provided, that notice need not be given of regular
meetings held at times and places fixed by resolution of the Board. Regular
meetings of the Board of Directors shall be held at least six times in every
calendar year. Meetings may be held at any time without notice if all of the
Directors are present, or if those not present waive notice either before or
after the meeting. Neither the business to be transacted nor the purpose of
any annual or special meeting of the Board of Directors need be specified in
the notice or waiver of notice of such meeting.
Section 2.7. Quorum. A majority of the members of the Board of
Directors shall constitute a quorum.
Section 2.8. Compensation. The Board of Directors shall fix the
compensation of the Directors.
Section 2.9. Nominating Committee. The Board of Directors shall act
as a nominating committee for selecting the management nominees for election
as Directors. Except in the case of a nominee substituted as a result of the
death or other incapacity of a management nominee, the nominating committee
shall deliver written nominations to the Secretary at least 20 days prior to
the date of the annual meeting. Provided such committee makes such
nominations, no nominations for Directors except those made by the nominating
committee shall be voted upon at the annual meeting unless other nominations
by shareholders are made in writing and delivered to the Secretary of the
Corporation at least 5 days prior to the date of the annual meeting. Ballots
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bearing the names of all the persons nominated by the nominating committee and
by shareholders shall be provided for use at the annual meeting. If the
nominating committee shall fail or refuse to act at least 20 days prior to the
annual meeting, nominations for Directors may be made at the annual meeting by
any shareholder entitled to vote and shall be voted upon.
Section 2.10. Other Committees. The Board of Directors may create
committees and appoint members of committees in accordance with Virginia law.
Section 2.11. Age Limitations. Other than Directors serving as
directors of the Corporation's predecessor as of September 19, 1974, no person
shall be eligible for election, re-election, appointment, or re-appointment to
the Board of Directors of the Corporation if such person is then more than 71
years of age. Any Director subject to this provision, upon attaining that
age, shall automatically cease to be a Director and the Board of Directors
shall fill the vacancy until the next annual meeting of shareholders.
ARTICLE III
Executive Committee
Section 3.1. Appointment. The Board of Directors, by resolution
adopted by a majority of the full Board, may designate the Chief Executive
Officer and two or more of the other Directors to constitute an Executive
Committee. The designation of any committee pursuant to this Article III and
the delegation of authority thereto shall not operate to relieve the Board of
Directors, or any Director, of any responsibility imposed by law or
regulation.
Section 3.2. Authority. The Executive Committee, when the Board of
Directors is not in session, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to
be affixed to all papers which may require it, except to the extent, if any,
that such powers and authority shall be limited by resolution of the Board of
Directors or Virginia law.
Section 3.3. Tenure. Each member of the Executive Committee shall
hold office until the next annual regular meeting of the Board of Directors
following his designation and until his successor is designated as a member of
the Executive Committee.
Section 3.4. Meetings. Regular meetings of the Executive Committee
may be held without notice at such times and places as the Executive Committee
may fix from time to time by resolution. Special meetings of the Executive
Committee may be called by any member thereof upon not less than one day's
notice stating the place, date and hour of the meeting, which notice may be
written or oral. Any members of the Executive Committee may waive notice of
any meeting and no notice of any meeting need be given to any member thereof
who attends in person. The notice of a meeting of the Executive Committee
need not state the business proposed to be transacted at the meeting.
ARTICLE IV
Officers
Section 4.1. General. The officers of the Corporation shall be
chosen by the Board of Directors and shall be a President, a Secretary and a
Treasurer. The Chairman of the Board may also be designated as an officer.
The Board of Directors may designate one or more Vice Presidents, Assistant
secretaries, Assistant Treasurers and other officers. The offices of
Secretary and Treasurer may be held by the same person and a Vice President
may also be either the Secretary or the Treasurer. The officers of the
Corporation need not be either shareholders or Directors of the Corporation.
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Section 4.2. Election. The Board of Directors at its first meeting
held after the annual meeting of shareholders shall elect annually the
officers of the Corporation who shall exercise such powers and perform such
duties as shall be set forth in these Bylaws and as determined from time to
time by the Board of Directors; and all officers of the Corporation shall hold
office until their successors are chosen and qualified, or until their earlier
resignation or removal. Any officer elected by the Board of Directors may be
removed at any time by the affirmative vote of a majority of the Board of
Directors. Any vacancy occurring in any office of the Corporation shall be
filled by the Board of Directors. The salaries of all officers of the
Corporation shall be fixed by the Board of Directors.
Section 4.3. Removal. Any officer may be removed by the Board of
Directors whenever in its judgment the best interests of the Corporation will
be served thereby, but such removal, other than for cause, shall be without
prejudice to the contract rights, if any, of the person so removed.
Section 4.4. Voting Securities Owned by the Corporation. Powers of
attorney, proxies, waivers of notice of meeting, consents and other
instruments relating to securities owned by the Corporation may be executed in
the name of and on behalf of the Corporation by the President or any Vice
President, and any such officer may, in the name of and on behalf of the
Corporation, take all such action as any such officer may deem advisable to
vote in person or by proxy at any meeting of security holders of any
corporation which the Corporation may own securities and at any such meeting
shall possess and may exercise any and all rights and power incident to the
ownership of such securities and which, as the owner thereof, the Corporation
might have exercised and possessed if present. The Board of Directors may, by
resolution, from time to time confer like powers upon any other person or
persons.
Section 4.5. President. The President shall be a director of the
Corporation. The President or the Chairman of the Board, as designated by the
Board of Directors, shall be the chief executive officer. The President
shall, subject to the control of the Board of Directors, have general
supervision of the business of the Corporation and shall see that all orders
and resolutions of the Board of Directors are carried into effect. He shall
execute all bonds, mortgages, contracts and other instruments of the
Corporation requiring a seal, under the seal of the Corporation, except where
required or permitted by law to be otherwise signed and executed and except
that the other officers of the Corporation may sign and execute documents when
so authorized by these Bylaws, the Board of Directors or the President. If so
designated by the Board of Directors, the President shall preside at the
annual meetings and special meetings of the shareholders. The President shall
also perform such other duties and may exercise such other powers as from time
to time assigned to him by these Bylaws or by the Board of Directors.
Section 4.6. Vice President. At the request of the President or in
his absence or in the event of his inability or refusal to act, the Vice
President or the Vice Presidents if there is more than one (in the order
designated by the Board of Directors) shall perform the duties of the
President, and when so acting, shall have all the powers and be subject to all
the restrictions upon the President. Each Vice President shall perform such
other duties and have such other powers as the Board of Directors from time to
time may prescribe. The Board of Directors may designate one or more Vice
Presidents as executive Vice President or senior Vice President. If there is
no Vice President, the Board of Directors shall designate the officer of the
Corporation who, in the absence of the President or in the event of the
inability or refusal of the President to act, shall perform the duties of the
President, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the President.
Section 4.7. Secretary. The Secretary shall attend all meetings of
the Board of Directors and all meetings of shareholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
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<PAGE> 23
required. The Secretary shall give, or cause to be given, notice of all
meetings of the shareholders and special meetings of the Board of Directors,
and shall perform such other duties as may be prescribed by the Board of
Directors or President, under whose supervision he shall be. If the Secretary
shall be unable or shall refuse to cause to be given notice of all meetings of
the shareholders and special meetings of the Board of Directors, and if there
be no Assistant Secretary, then either the Board of Directors or the President
may choose another officer to cause such notice to be given. The Secretary
shall have custody of the seal of the Corporation and the Secretary or any
Assistant Secretary, if there is one, shall have authority to affix the same
to any instrument requiring it and when so affixed, it may be attested by the
signature of the Secretary or by the signature of any such Assistant
Secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the Corporation and to attest the affixing by his
signature. The Secretary shall see that all books, reports, statements,
certificates and other documents and records required by law to be kept or
filed are properly kept or filed, as the case may be.
Section 4.8. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may
be ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors,
at its regular meetings, or when the Board of Directors so requires, an
account of all his transactions as Treasurer and of the financial condition of
the Corporation. If required by the Board of Directors, the Treasurer shall
give the Corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors for the faithful performance
of the duties of his office and for the restoration to the Corporation, in
case of his death, resignation, retirement or removal from office, of all
books, papers, vouchers, money and other property of whatever kind in his
possession or under his control belonging to the Corporation.
Section 4.9. Assistant Secretaries. Except as may be otherwise
provided in these Bylaws, Assistant secretaries, if there is any, shall
perform such duties and have such powers as from time to time may be assigned
to them by the Board of Directors, the President, any Vice President, if there
is one, or the Secretary, and in the absence of the Secretary or in the event
of his disability or refusal to act, shall perform the duties of the
Secretary, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the Secretary.
Section 4.10. Assistant Treasurers. Assistant Treasurers, if there
is any, shall perform such duties and have such powers as from time to time
may be assigned to them by the Board of Directors, the President, any Vice
President, if there is one, or the Treasurer, and in the absence of the
Treasurer, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the Treasurer. If required by the Board of
Directors, an Assistant Treasurer shall give the Corporation a bond in such
sum and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of his office and for the
restoration to the Corporation, in case of his death, resignation, retirement
or removal from office, of all books, papers, vouchers, money and other
property of whatever kind in his possession or under his control belonging to
the Corporation.
Section 4.11. Other Officers. Such other officers as the Board of
Directors may choose shall perform such duties and have such powers as from
time to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and
powers.
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ARTICLE V
Capital Stock
Section 5.1. Issues of Certificate of Stock. Certificates of
capital stock shall be in such form as may be prescribed by law and by the
Board of Directors. All certificates shall be signed by the President and by
the Secretary or an Assistant Secretary, or by any other two Officers
authorized by resolution of the Board of Directors.
Section 5.2. Transfer of Stock. The stock of the corporation shall
be transferable or assignable on the books of the Corporation by the holders
in person or by attorney on surrender of the certificate or certificates for
such shares duly endorsed, and, if sought to be transferred by attorney,
accompanied by a written power of attorney to have such stock transferred on
the books of the Corporation.
Section 5.3. Restrictions on Transfer of Stock. Any restrictions
that may be imposed by law, by the Articles of Incorporation or Bylaws of the
Corporation, or by an agreement among shareholders of the Corporation, shall
be noted conspicuously on the front or back of all certificates representing
shares of stock of the Corporation.
Section 5.4. Lost, Destroyed or Mutilated Certificates. The holder
of stock of the Corporation shall immediately notify the Corporation of any
loss, destruction, or mutilation of the certificate therefor, and the
Corporation may in its discretion cause one or more new certificates for the
same aggregate number of shares to be issued to such Stockholder upon the
surrender of the mutilated certificate, or upon satisfactory proof of such
loss or destruction accompanied by the deposit of a bond in such form and
amount and with such surety as the Corporation may require.
Section 5.5. Holder of Record. The Corporation shall be entitled
to treat the holder of record of any share or shares of stock as the holder
thereof in fact and shall not be bound to recognize any equitable or other
claim to or interest in such shares of stock on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise expressly provided by law.
Section 5.6. Record Date. The Board of Directors shall fix in
advance the record date in order to make a determination of shareholders for
any purpose, including the determination of shareholders entitled to notice of
or to vote at any shareholders' meeting or entitled to payment of any dividend
or distribution to shareholders. Such record date shall not be more than
seventy (70) days prior to the date on which the particular action requiring
such determination of shareholders is to be taken.
Section 5.7. Control Share Acquisitions. Article 14.1 of the Virginia
Stock Corporation Act shall not apply to the Corporation.
ARTICLE VI
Miscellaneous Provisions
Section 6.1. Seal. The seal of the Corporation shall be circular
in shape with the name of the Corporation around the circumference thereof,
and the word "SEAL" in the center thereof.
Section 6.2. Examination of the Books and Records. The books and
records of account of the Corporation, the minutes of the proceedings of the
shareholders, the Board and Committees appointed by the Board of Directors and
the records of the shareholders showing the names and addresses of all
shareholders and the number of shares held by each, shall be subject to
inspection during the normal business hours by any person who is a duly
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<PAGE> 25
qualified Director of the Corporation at the time he makes such inspection.
Shareholders shall have such rights to inspect records of the Corporation as
are prescribed by applicable law.
Section 6.3. Checks, Notes and Drafts. Checks, notes, drafts, and
other orders for the payment of money shall be signed by such persons as the
Board of Directors from time to time may authorize.
Section 6.4. Amendments to By-Laws. These Bylaws may be altered,
amended or repealed in accordance with the Articles of Incorporation.
Section 6.5. Voting of Stock Held. Unless otherwise provided by
resolution of the Board of Directors, the Chairman of the Board of Directors,
the President or any Executive Vice President may from time to time appoint an
attorney or attorneys as agent or agents of the Corporation to cast in the
name of the Corporation the votes which the Corporation may be entitled to
cast as a shareholder or otherwise in any other corporation, any of whose
stock or securities may be held by the Corporation, at meetings of the holders
of the stock or other securities of such other corporation, or to consent in
writing to any action by any such other corporation; and such Officers may
instruct the person or persons so appointed as to the manner of casting such
votes or giving such consent, and may execute or cause to be executed on
behalf of the Corporation and under its corporate seal, or otherwise, such
written proxies, consents, waivers, or other instruments as may be necessary
or proper in the premises; or any of such Officers may himself attend any
meeting of the holders of stock or other securities of any such other
corporation and there vote or exercise any or all other powers of the
Corporation as the holder of such stock or other securities of such other
corporation.
<PAGE>
<PAGE> 26
COMMUNITY FINANCIAL CORPORATION
1996 INCENTIVE PLAN
Article 1
DEFINITIONS
1.01 Affiliate means any "subsidiary" or "parent corporation" (within
the meaning of Section 424 of the Code) of the Company.
1.02 Agreement means a written agreement (including any amendment or
supplement thereto) between the Company and a Participant specifying the terms
and conditions of a Grant issued to such Participant.
1.03 Board means the Board of Directors of the Company.
1.04 Change of Control means and shall be deemed to have taken place
if: (i) a third person, including a "group" as defined in Section 13(d)(3) of
the Securities Exchange Act of 1934, who after the effective date of the Plan
becomes the beneficial owner of shares of the Company having 20 percent or
more of the total number of votes that may be cast for the election of
Directors of the Company; or, (ii) as the result of, or in connection with,
any cash tender or exchange offer, merger or other business combination, sale
of assets or contested election, or any combination of the foregoing
transactions (a "Transaction"), the persons who were Directors of the Company
before the Transaction shall cease to constitute a majority of the Board of
the Company or any successor of the Company.
1.05 Change of Control Date is the date on which an event described in
(i) or (ii) of Section 1.04 occurs.
1.06 Code mans the Internal Revenue Code of 1986, and any amendments
thereto.
1.07 Committee means the Stock Option Committee of the Board.
1.08 Common Stock means the Common Stock of the Company.
1.09 Company means Community Financial Corporation, a Delaware
corporation.
1.10 Fair Market Value means, on any given date, the average of the bid
and asked prices at closing of a share of Common Stock on the over-the-counter
market on such day or, if the Common Stock was not traded on such day, then on
the next preceding day that the Common Stock was traded on such exchange, all
as reported by such source as the Committee may select.
1.11 Grant means the grant of an Option.
1.12 Incentive Stock Option mans an Option that is intended to qualify
as an "incentive stock option" under Section 422 of the Code.
1.13 Non-Qualified Stock Option means an Option other than an Incentive
Stock Option.
1.14 Option mans a stock option that entitles the holder to purchase
from the Company a stated number of shares of Common Stock at the price set
forth in an Agreement.
1.15 Option Price means the price per share for Common Stock purchased
on the exercise of an Option as provided in Article VI.
<PAGE>
<PAGE> 27
1.16 Participant mens a director of the Company or an employee of the
Company or of a Subsidiary who satisfies the requirements of Article IV and is
selected by the Committee to receive a Grant.
1.17 Plan means the Community Financial Corporation 1996 Incentive
Plan.
1.18 Rule 16b-3 means Rule 16b-3, as promulgated by the Securities and
Exchange Commission under Section 16(b) of the Securities Exchange Act of
1934, as amended from time to time.
1.19 Securities Broker means the registered securities broker
acceptable to the Company who agrees to effect the cashless exercise of an
option pursuant to Section 8.04 hereof.
1.20 Subsidiary means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations in the chain (other than the last corporation) owns stock
possessing at least 50 percent of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
Article II
PURPOSES
The Plan is intended to assist the Company in recruiting and retaining
directors and key employees with ability and initiative by enabling directors
and employees who contribute significantly to the Company or an Affiliate to
participate in its future success and to associate their interests with those
of the Company and its shareholders. The Plan is intended to permit the
issuance of Options qualifying as Incentive Stock Options or Non-Qualified
Stock Options as designated by the Committee at time of grant. No Option that
is intended to be an Incentive Stock Option, however, shall be invalid for
failure to qualify as an Incentive Stock Option under Section 422 of the Code
but shall be treated as a Non-Qualified Stock Option.
Article III
ADMINISTRATION
The Plan shall be administered by the Committee. The Committee shall
have authority to issue Grants upon such terms (not inconsistent with the
provisions of this Plan) as the Committee may consider appropriate. The terms
of such Grants may include conditions (in addition to those contained in this
Plan) on the exercisability of all or any part of an Option. In addition, the
Committee shall have complete authority to interpret all provisions of this
Plan; to prescribe the form of Agreements; to adopt, amend, and rescind rules
and regulations pertaining to the administration of the Plan; and to make all
other determinations necessary or advisable for the administration of this
Plan.
The express grant in this Plan of any specific power to the Committee
shall not be construed as limiting any power or authority of the Committee.
Any decision made, or action taken, by the Committee or in connection with the
administration of this Plan shall be final and conclusive. All expenses of
administering this Plan shall be borne by the Company.
Article IV
ELIGIBILITY
4.01 General. Any employee of the Company or of any Subsidiary
(including any corporation that becomes a Subsidiary after the adoption of
this Plan) who, in the judgment of the Committee, has contributed
significantly or can be expected to contribute significantly to the profits or
growth of the Company or a Subsidiary may receive one or more Grants.
<PAGE>
<PAGE> 28
Directors of the Company are eligible to participate in this Plan. Except as
provided in Article XII, a person who is a member of the Committee may not be
issued Grants while he is a member of the Committee.
4.02 Grants. The Committee will designate individuals to whom Grants
are to be issued and will specify the number of shares of Common Stock subject
to each such Grant. All Grants issued under this Plan shall be evidenced by
Agreements which shall be subject to applicable provisions of this Plan and to
such other provisions as the Committee may adopt. No Participant may be
granted Options that are Incentive Stock Options (under all Incentive Stock
Option Plans of the Company and Affiliates) which are first exercisable in any
calendar year for stock having an aggregate Fair Market Value (determined as
of the date an Option is granted) exceeding $100,000.
4.03 Designation of Option as an Incentive Stock Option or a
Non-Qualified Stock Option. The Committee will designate at the time an
Option is granted whether the Option is to be treated as an Incentive Stock
Option or a Non-Qualified Stock Option. In the absence, however, of any such
designation, such option shall be treated as a Non-Qualified Stock Option.
Article V
STOCK SUBJECT TO PLAN
The maximum number of shares of Common Stock available for Grants under
the Plan shall be 60,000. Such maximum number of shares of Common Stock is
subject to adjustment as provided in Article IX. Shares of Common Stock
subject to Grants under the Plan may be authorized but previously unissued
shares of Common Stock or previously issued shares of Common Stock reacquired
by the Company.
If any option terminates without being exercised, shares of Common Stock
subject to such Grants shall be available for distribution in connection with
Grants under the Plan.
Article VI
OPTION PRICE
The price per share for Common Stock purchased on the exercise of an
Option shall be fixed by the Committee on the date of Grant; provided,
however, that in the case of an Option that is an Incentive Stock Option, the
price per share shall not be less than the Fair Market Value on such date.
Article VII
EXERCISE OF OPTIONS
7.01 Maximum Option Period. The period in which an Option may be
exercised shall be determined by the Committee on the date of grant; provided,
however that an Incentive Stock Option shall not be exercisable after the
expiration of 10 years from the date the Incentive Stock Option was granted.
7.02 Nontransferability. Any Option granted under this Plan shall be
nontransferable except by will or by the laws of descent and distribution. In
the event of any such transfer, the Option must be transferred to the same
person or persons, trust or estate. During the lifetime of the Participant to
whom an Incentive Stock Option is granted, the Option may be exercised only by
the Participant. No right or interest of a Participant in any Option shall be
liability for, or subject to, any lien, obligation, or liability of such
Participant.
<PAGE>
<PAGE> 29
7.03 Employee Status. For purposes of determining the applicability of
Section 422 of the Code (relating to Incentive Stock Options), or in the vent
that the terms of any Grant provide that it may be exercised only during
employment or within a specified period of time after termination of
employment, the Committee may decide to what extent leaves of absence for
governmental or military service, illness, temporary disability, or other
reasons shall not be deemed interruptions of continuous employment.
Article VIII
METHOD OF EXERCISE
8.01 Exercise. Subject to the provisions of Articles VII and X, an
Option may be exercised in whole at any time or in part from time to time at
such times and in compliance with such requirements as the Committee shall
determine. An option granted under this Plan may be exercised with respect to
any number of whole shares less than the full number for which the Option
could be exercised. Such partial exercise of an Option shall not affect the
right to exercise the Option from time to time in accordance with this Plan
with respect to remaining shares subject to the Option.
8.02 Payment. Unless otherwise provided by the Agreement, payment of
the Option Price shall be made in cash. If the Agreement provides, payment of
all or part of the Option Price may be made by withholding shares of Common
Stock upon exercise of an Option or by surrendering already owned shares of
Common Stock to the Company, provided the shares withheld or surrendered have
a Fair Market Value (determined as of the day preceding the date of exercise)
that is not less than such price or part thereof. In addition, the Committee
may establish such payment or other terms as it may deem to be appropriate and
consistent with these purposes.
8.03 Shareholder Rights. No participant shall have any rights as a
shareholder with respect to shares subject to his Option until the date he
exercises such Option.
8.04 Cashless Exercise. To the extent permitted under the applicable
laws and regulations, at the request of the Participant and with the consent
of the Committee, the Company agrees to cooperate in a "cashless exercise" of
the Option. The cashless exercise shall be effected by the Participant
delivering to the Securities Broker instructions to exercise all or part of
the Option, including instructions to sell a sufficient number of shares of
Common Stock to cover the costs and expenses associated therewith.
Article IX
ADJUSTMENT UPON CHANGE IN COMMON STOCK
Should the Company effect one or more (x) stock dividends, stock
split-ups, subdivisions or consolidations of shares or other similar changes
in capitalization; (y) spin-offs, spin-outs, split-ups, split-offs, or other
such distribution of assets to shareholders; or (z) direct or indirect
assumptions and/or conversions of outstanding Options due to an acquisition of
the Company, then the maximum number of shares as to which Grants may be
issued under this Plan shall be proportionately adjusted and their terms shall
be adjusted as the Committee shall determine to be equitably required,
provided that the number of shares subject to any Grant shall always be a
whole number. Any determination made under this Article IX by the Committee
shall be final and conclusive.
The issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, for cash or property
or for labor or services, either upon direct sale or upon the exercise of
rights or warrants to subscribe therefor, or upon conversion of shares or
<PAGE>
<PAGE> 30
obligations of the Company convertible into such shares or other securities,
shall not affect, and no adjustment by reason thereof shall be made with
respect to any Grant.
Article X
COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES
No Grant shall be exercisable, no Common Stock shall be issued, no
certificates for shares of Common Stock shall be delivered, and no payment
shall be made under this Plan except in compliance with all applicable Federal
and state laws and regulations (including, without limitation, withholding tax
requirements) and the rules of all domestic stock exchanges on which the
Company's shares may be listed. The Company may rely on an opinion of its
counsel as to such compliance. Any share certificate issued to evidence
Common Stock for which a Grant is exercised or an Award is issued may bear
such legends and statements as the Committee may deem advisable to assure
compliance with Federal and state laws and regulations. No Grant shall be
exercisable, no Common Stock shall be issued, no certificate for shares shall
be delivered, and no payment shall be made under this Plan until the Company
has obtained such consent or approval as the Committee may deem advisable from
regulatory bodies having jurisdiction over such matters.
Article XI
GENERAL PROVISIONS
11.01 Effect on Employment. Neither the adoption of this Plan, its
operation, nor any documents describing or referring to this Plan (or any part
thereof) shall confer upon any employee any right to continue in the employ of
the Company or a Subsidiary or in any way affect any right and power of the
Company or a Subsidiary to terminate the employment of any employee at any
time with or without assigning a reason therefor.
11.02 Change of Control. Notwithstanding any other provision in this
Plan to the contrary, unless the Committee provides otherwise in an Agreement,
a Grant may be exercised immediately in full upon a Change of Control.
11.03 Rules of Construction. Headings are given to the articles and
sections of this Plan for ease of reference. The reference to any statute,
regulation, or other provision of law shall be construed to refer to any
amendment to or successor of such provision of law.
11.04 Amendment. The Board may amend or terminate this Plan from
time to time; provided, however, that no amendment may become effective until
shareholder approval is obtained if the amendment (i) materially increases the
aggregate number of shares that may be issued pursuant to Options, (ii)
materially increases the benefits to Participants under the Agreement, or
(iii) materially changes the class of employees eligible to become
Participants. No amendment shall, without a Participant's consent, adversely
affect any rights of such Participant under any Grant outstanding at the time
such amendment is made, except such an amendment made to cause the Plan to
qualify for the Rule 16b-3 exemption. No amendment shall be made if it would
disqualify the Plan from the exemption provided by Rule 16b-3. The Committee
may amend the terms of any Grant theretofore issued under this Plan,
prospectively or retrospectively, and include in such amendment the right of
the Committee to pay a Participant cash in lieu of shares of Common Stock upon
the termination (by exercise or otherwise) of an Option, but no such amendment
shall impair the rights of any Participant without the Participant's consent,
except such an amendment made to cause the Plan, or Grant to qualify for the
exemption provided by Rule 16b-3.
11.05 Duration of Plan. No Grant may be issued under this Plan
before May 22, 1996, or after May 21, 2006.
<PAGE>
<PAGE> 31
11.06 Shareholder Approval. This Plan has been approved by the Board
of Directors of the Company and shall be effective as of May 22, 1996 subject,
however, to approval by the shareholders of the Company entitled to vote at
the 1996 Annual Meeting of Shareholders.
Article XII
DIRECTOR OPTIONS
On the date the shareholders of the Company approve the Plan, each
director of the Company who is not also a full time employee of the Company
shall be granted a Non-Qualified Stock Option for 2,500 shares of Common
Stock. The Option Price shall be the Fair Market Value on the date of grant.
Such Options shall expire ten years after the date of grant or ninety (90)
days after the grantee ceases to serve as a director of the Company, whichever
occurs first.
To the extent shares of Common Stock are available under the Plan, a
Non-Qualified Stock Option for 2,500 shares of Common Stock shall be granted
to any individual who is not a full time employee of the Company and who
becomes a director of the Company after the shareholders of the Company
approve the Plan. Any such option shall be granted on the date any such
individual is first appointed or elected to the Board. The Option Price shall
be the Fair Market Value on the date of grant. Any such option shall expire
ten years after the date of grant or ninety (90) days after the grantee ceases
to serve as a director of the Company, whichever occurs first.
<TABLE> <S> <C>
<PAGE>
<PAGE>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-QSB FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,440,039
<INT-BEARING-DEPOSITS> 1,221,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,009,123
<INVESTMENTS-CARRYING> 5,819,636
<INVESTMENTS-MARKET> 0
<LOANS> 142,962,373
<ALLOWANCE> 0
<TOTAL-ASSETS> 160,791,350
<DEPOSITS> 110,375,397
<SHORT-TERM> 26,000,000
<LIABILITIES-OTHER> 2,036,281
<LONG-TERM> 0
0
0
<COMMON> 12,720
<OTHER-SE> 22,366,952
<TOTAL-LIABILITIES-AND-EQUITY> 160,791,350
<INTEREST-LOAN> 5,990,408
<INTEREST-INVEST> 246,519
<INTEREST-OTHER> 57,690
<INTEREST-TOTAL> 6,294,617
<INTEREST-DEPOSIT> 2,494,925
<INTEREST-EXPENSE> 3,233,239
<INTEREST-INCOME-NET> 3,061,378
<LOAN-LOSSES> 102,638
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,178,275
<INCOME-PRETAX> 1,027,768
<INCOME-PRE-EXTRAORDINARY> 1,027,768
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 644,286
<EPS-PRIMARY> .51
<EPS-DILUTED> .51
<YIELD-ACTUAL> 0
<LOANS-NON> 329,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
