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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 JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-18261
COMMUNITY FINANCIAL CORPORATION
(Exact name of small business issuer as specified in its charter)
DELAWARE 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 July 31, 1997: 1,275,373.
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 June 30, 1997 (unaudited)
and March 31, 1997.............................................1
Consolidated Statements of Income for the
Three Months Ended June 30, 1997 and 1996 (unaudited)..........2
Consolidated Statements of Cash Flows for the
Three Months Ended June 30, 1997 and
1996 (unaudited)...............................................3
Notes to Unaudited Interim Consolidated
Financial Statements...........................................4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................5
PART II. OTHER INFORMATION..............................................8
II-1
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COMMUNITY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
June 30, March 31,
1997 1997
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash (including interest bearing
deposits of approximately
$1,118,000 and $1,015,000) $ 4,522,495 $ 4,922,213
Securities
Held to maturity 6,706,799 5,197,437
Available for sale 2,881,485 2,243,220
Investment in Federal Home Loan
Bank stock, at cost 1,600,000 1,400,000
Loans receivable, net 154,743,739 148,905,485
Real estate owned 35,911 173,245
Property and equipment, net 3,556,548 3,542,108
Accrued interest receivable
Loans 935,866 851,365
Investments 121,431 138,073
Prepaid expenses and other assets 310,015 334,036
$175,414,289 $167,707,182
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $117,248,295 $116,594,885
Advances from Federal Home Loan
Bank 32,000,000 26,000,000
Advance payments by borrowers for
taxes and insurance 89,198 135,561
Other liabilities 2,026,948 1,639,740
Total Liabilities 151,364,441 144,370,186
Stockholders' Equity
Preferred stock $.01 par value,
authorized 3,000,000 shares,
none outstanding
Common stock, $.01 par value,
authorized 10,000,000 shares,
1,275,373 and 1,275,348 shares
outstanding 12,754 12,753
Additional paid in capital 4,717,177 4,716,677
Retained earnings 17,583,371 17,266,745
Net unrealized gain on securities
available for sale 1,736,546 1,340,821
Total Stockholders' Equity 24,049,848 23,336,996
$175,414,289 $167,707,182
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
COMMUNITY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
June 30,
------------------------------------
1997 1996
------------ ------------
(Unaudited)
<S> <C> <C>
INTEREST INCOME
Loans $3,211,542 $2,984,874
Investment securities 122,595 126,838
Other 29,148 32,216
Total interest income 3,363,285 3,143,928
INTEREST EXPENSE
Deposits 1,310,796 1,243,705
Borrowed money 418,361 389,197
Total interest expense 1,729,157 1,632,902
NET INTEREST INCOME 1,634,128 1,511,026
PROVISION FOR LOAN LOSSES 25,000 32,991
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,609,128 1,478,035
NONINTEREST INCOME
Service charges, fees
and commissions 168,309 115,903
Miscellaneous 402 1,606
Total noninterest
income 168,711 117,509
NONINTEREST EXPENSE
Compensation & benefits 424,217 285,731
Occupancy 114,802 99,322
Data processing 101,854 94,056
Federal insurance premium 18,269 61,631
Miscellaneous 326,882 175,083
Total noninterest
expense 986,024 715,823
INCOME BEFORE TAXES 791,815 879,721
INCOME TAXES 296,641 329,934
NET INCOME $ 495,174 $ 549,787
EARNINGS PER SHARE $ 0.390 $ 0.430
DIVIDENDS PER SHARE $ 0.140 $ 0.130
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
COMMUNITY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
June 30,
---------------------------
1997 1996
----------- -----------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $495,174 $549,787
Adjustments to reconcile net income to
net cash provided by operating activities
Provision for loan losses 25,000 32,991
Depreciation 59,747 55,240
Amortization of premium and accretion
of discount on securities, net 13 (1,976)
(Decrease) in net deferred loan fees (13,848) (6,718)
Increase in deferred income taxes 15,945 30,604
Decrease (increase) in other assets (93,496) 49,011
Increase (decrease) in other liabilities 324,900 106,007
(Gain)loss on sale of loans 4,606 (490)
Proceeds from sale of loans 723,500 248,000
Loans originated for resale (786,500) (281,000)
Net cash provided by operating activities 755,041 781,456
INVESTING ACTIVITIES
Proceeds from maturities of held for
investment securities 250,000 500,000
Purchases of investment securities (1,759,375) (498,281)
Net decrease (increase) in loans (5,837,844) 203,689
Purchases of property and equipment (82,901) (10,015)
Redemption (purchase) of FHLB stock (200,000) 100,000
Net cash provided (absorbed) by
investing activities (7,630,120) 295,393
FINANCING ACTIVITIES
Dividends paid (178,549) (165,256)
Net increase (decrease) in deposits 653,410 506,358
Proceeds from advances and other
borrowed money 8,000,000 26,000,000
Repayments of advances and other
borrowed money (2,000,000) (28,000,000)
Proceeds from issuance of common stock 500 9,400
Net cash provided (absorbed) by
financing activities 6,475,361 (1,649,498)
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (399,718) (572,649)
CASH AND CASH EQUIVALENT-beginning of period 4,922,213 3,673,085
CASH AND CASH EQUIVALENTS-end of period $4,522,495 $3,100,436
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
COMMUNITY FINANCIAL CORPORATION
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
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-Q 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 ("Community" or the "Company") and its
wholly-owned subsidiary, Community Bank (the "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 months ended June 30, 1997, are not
necessarily indicative of the results that may be expected for the year
ending March 31, 1998.
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 June 30, 1997
and 1996 have been determined by dividing net income by the weighted average
number of shares of common stock outstanding during these periods (1,275,355
and 1,270,436, respectively).
NOTE 3. - STOCKHOLDERS' EQUITY
The following table presents the Bank's capital levels at June 30, 1997
relative to the requirements applicable under the Financial Institutions
Reform, Recovery and Enforcement Act of 1989 ('FIRREA'):
<TABLE>
<CAPTION>
Amount Percent Actual Actual Excess
Required Required Amount Percent Amount
---------- --------- --------- ------- -----------
<S> <C> <C> <C> <C> <C>
Tangible Capital $2,621,000 1.50% $20,288,000 11.61% $17,667,000
Core Capital 5,242,000 3.00 20,288,000 11.61 15,046,000
Risk-based Capital 9,640,000 8.00 21,062,000 17.48 11,422,000
</TABLE>
<PAGE>
NOTE 3. - STOCKHOLDERS' EQUITY (cont.)
Capital distributions by the 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" institution 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 institution is
defined as an institution that has, on a pro forma basis after the proposed
distribution, capital equal to or greater than the OTS fully phased-in capital
requirement and has not been deemed by the OTS to be "in need of more than
normal supervision". The Bank is currently classified as a Tier 1 institution
for these purposes. The Capital Distribution Regulation requires that
institutions 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 June 30, 1997 and 1996 was
$1,723,894 and $1,704,935, respectively. There were no income taxes paid for
the three months ended June 30, 1997 and 1996.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
FINANCIAL CONDITION
The Company's total assets increased $7.7 million to $175.4 million at June
30, 1997, due primarily to a increase in loans of $5.8 million. The increase
in loans receivable was due primarily to the origination of variable rate
mortgage loans and consumer loans. Deposits increased $650,000 to $117.2
million at June 30, 1997, from $116.6 million at March 31, l997 while
Federal Home Loan Bank advances increased during the same period from $26.0
million to $32.0 million. The increase in deposits and advances was used
primarily to fund the increase in loans. Stockholders' equity increased to
$24.1 million at June 30, 1997, from $23.3 million at March 31, 1997, due
primarily to earnings for the three month period ended June 30, 1997 and an
adjustment in the market value of Federal Home Loan Mortgage Corporation
stock, which was partially offset by a payment of $0.14 per share in cash
dividends.
At June 30, 1997, the Bank's non-performing assets totalled $678,000 or 0.39%
of assets compared to $676,000 and .40% of assets at March 31, 1997. At June
30, 1997 the Company's non-performing assets were comprised of two single
family residential rental properties which were more than ninety days past due
and various consumer loans which includes one lending relationship of
approximately $316,000 secured by classic automobiles and a second mortgage on
real estate for which an allowance of $200,000 has been made. Based on current
market values of the collateral securing these loans, management anticipates
no significant losses in excess of the reserves for losses previously <PAGE>
<PAGE>
recorded. Due to an uncertain real estate market and the economy in general
no assurances can be given that the Company's level of non-performing assets
may not increase in the future.
The Company maintains an allowance for loan losses to provide for estimated
potential losses in its loan portfolio. Management determines the level of
reserves based on loan performance, the value of the collateral, economic and
market conditions, and previous experience. Management reviews the adequacy
of the allowance at least quarterly, utilizing its internal loan
classifications system. Management believes that the loan loss reserve is
adequate at June 30, 1997. Although management believes it uses the best
information available, future adjustments to reserves may be necessary.
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 June 30,
1997, the Bank's liquidity ratio (liquid assets as a percentage of net
withdrawable savings and current borrowings) was 7.92%, which exceeds the
regulatory requirement.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1997 and 1996.
- ----------------------------------------------
General. Net income for the three months ended June 30, 1997 was $495,000
compared to $550,000 for the three months ended June 30, 1996, due
primarily to an increase in noninterest expense which was offset in part by an
increase in net interest income. Income before taxes decreased to $792,000 for
the three months ended June 30, 1997 from $880,000 for the three months
ended June 30, 1996.
Interest Income. Total interest income increased to $3.4 million for the
three months ended June 30, 1997, from $3.1 million for the three months ended
June 30, 1996, due to an increase in the balances of loans and investments for
the three months ended June 30, 1997 as compared to the period ended June 30,
1996. The average yield earned on interest-earning assets was 8.25% for the
three months ended June 30, 1997 compared to 8.25% for the three months ended
June 30, 1996.
Interest Expense. Total interest expense increased to $1.7 million for the
quarter ended June 30, 1997, from $1.6 million for the quarter ended June 30,
1996. Interest on deposits increased to $1.3 million for the quarter ended
June 30, 1997 from $1.2 million for the quarter ended June 30, 1996 due
primarily to an increase in deposits for the quarter ended June 30, 1997.
Interest expense on borrowed money increased to $418,000 for the quarter ended
June 30, 1997, from $389,000 for the quarter ended June 30, 1996, due to an
increase in average borrowings. The average rate paid on interest-bearing
liabilities was 4.74% for the three months ended June 30, 1997 compared to
4.82% to the three months ended June 30, 1996.
<PAGE>
<PAGE>
Provision for Loan Losses. The provision for loan losses decreased
to $25,000 for the three months ended June 30, 1997, from $33,000 for the
three months ended June 30, 1996.
Noninterest Income. Noninterest income increased to $169,000 for the three
months ended June 30, 1997, from $118,000 for the three months ended
June 30, 1996 due primarily to both an increase in checking account charges
which is related to an increase in account volume and an increase in the sale
of fixed rate mortgage loans.
Noninterest Expenses. Noninterest expense increased to $986,000 for the three
months ended June 30, 1997, from $716,000 for the three months ended
June 30, 1996. The increase in noninterest expense is primarily attributable
to an increase in compensation, marketing and other expenses related to the
opening of a branch location on April 9, 1997 in Virginia Beach, Virginia.
Taxes. Taxes decreased to $297,000 for the three months ended June 30,
1997, from $330,000 for the three months ended June 30, 1996, due to the
decrease in income before taxes.
Forward-Looking Statements
This Quarterly Report on Form 10-QSB contains certain forward-looking
statements with respect to the financial condition, results of operations and
business of Community. These forward-looking statements involve certain risks
and uncertainties. When used in this Quarterly Report on Form 10-QSB or
future filings by the Company with the Securities and Exchange Commission, in
the Company's press releases or other public or shareholder communications, or
in oral statements made with the approval of an authorized executive officer,
the words or phrases "will likely result", "are expected to", "will continue",
"is anticipated", "estimate", "project", "believe" or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. The Company wishes to
caution readers not to place undue reliance on any such forward-looking
statements, which speak only as of the date made, and to advise readers that
various factors including regional and national economic conditions, changes
in levels of market interest rates, credit risks of lending activities, and
competitive and regulatory factors could affect the Company's financial
performance and could cause the Company's actual results for future periods to
differ materially from those anticipated or projected.
The Company does not undertake and specifically disclaims any obligation to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.<PAGE>
<PAGE>
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
Exhibit 27 - Financial Data Schedule
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<PAGE>
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: _________ __, 1997
By: /s/ R. Jerry Giles
-------------------------------
R. Jerry Giles
Chief Financial Officer
(Duly Authorized Officer)
<PAGE>
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
27 Financial Data Schedule.
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<TABLE> <S> <C>
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<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY REPORT ON FORM 10-QSB FOR THE QUARTER ENDED June 30, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 4,522,495
<INT-BEARING-DEPOSITS> 1,118,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,881,485
<INVESTMENTS-CARRYING> 6,706,799
<INVESTMENTS-MARKET> 0
<LOANS> 154,743,739
<ALLOWANCE> 0
<TOTAL-ASSETS> 175,414,289
<DEPOSITS> 117,248,295
<SHORT-TERM> 32,000,000
<LIABILITIES-OTHER> 1,367,312
<LONG-TERM> 0
0
0
<COMMON> 12,754
<OTHER-SE> 24,037,094
<TOTAL-LIABILITIES-AND-EQUITY> 175,414,289
<INTEREST-LOAN> 3,211,542
<INTEREST-INVEST> 122,595
<INTEREST-OTHER> 29,148
<INTEREST-TOTAL> 3,363,285
<INTEREST-DEPOSIT> 1,310,796
<INTEREST-EXPENSE> 1,729,157
<INTEREST-INCOME-NET> 1,634,128
<LOAN-LOSSES> 25,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 986,024
<INCOME-PRETAX> 791,815
<INCOME-PRE-EXTRAORDINARY> 791,815
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 495,174
<EPS-PRIMARY> .39
<EPS-DILUTED> .39
<YIELD-ACTUAL> 0
<LOANS-NON> 678,000
<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>
