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, 1998
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)
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 $.01 per share, outstanding at the
close of business on November 13, 1998: 2,572,046.
Transitional Small Business Disclosure Format (Check one)
Yes [ ] No [X]
<PAGE>
COMMUNITY FINANCIAL CORPORATION
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial
Condition at September 30, 1998 (unaudited)
and March 31, 1998 ............................................... 1
Consolidated Statements of Income for the
Three Months Ended September 30, 1998 and 1997 (unaudited) ....... 2
Consolidated Statements of Cash Flows for the
Three Months Ended September 30, 1998 and
1997 (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 ................................................ 11
<PAGE>
COMMUNITY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
September 30, March 31,
1998 1998
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash (including interest bearing
deposits of approximately
$466,000 and $2,866,000) ................... $ 5,505,611 $ 7,266,145
Securities
Held to maturity ........................... 4,399,463 3,184,241
Available for sale ......................... 3,911,443 3,905,055
Investment in Federal Home Loan
Bank stock, at cost ........................ 1,600,000 1,600,000
Loans receivable, net ........................ 164,309,237 162,471,219
Real estate owned ............................ 305,780 303,365
Property and equipment, net .................. 5,572,025 3,634,223
Accrued interest receivable
Loans ...................................... 962,498 945,365
Investments ................................ 99,985 86,424
Prepaid expenses and other assets ............ 828,822 498,137
------------ ------------
Total Assets ......................... $187,494,864 $183,894,174
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits ..................................... $144,243,375 $138,164,173
Advances from Federal Home Loan Bank ......... 15,000,000 18,000,000
Advance payments by borrowers for
taxes and insurance ........................ 153,820 175,053
Other liabilities ............................ 2,012,056 2,040,188
------------ ------------
Total Liabilities .................... 161,409,251 158,379,414
------------ ------------
Stockholders' Equity
Preferred stock $.01 par value,
authorized 3,000,000 shares,
none outstanding
Common stock, $.01 par value,
authorized 10,000,000 shares,
2,570,646 and 2,559,446 shares
outstanding .............................. 25,706 25,594
Additional paid in capital ................. 4,882,022 4,773,634
Retained earnings .......................... 18,839,009 18,344,373
Net unrealized gain on securities
available for sale ....................... 2,338,876 2,371,159
------------ ------------
Total Stockholders' Equity ........... 26,085,613 25,514,760
------------ ------------
Total Liabilities and
Shareholders' Equity ............... $187,494,864 $183,894,174
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
COMMUNITY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30 September 30
----------------------- -----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans .................... $3,423,547 $3,341,335 $6,863,209 $6,552,877
Investment securities .... 83,401 138,383 150,089 260,302
Other .................... 50,376 30,650 101,016 60,473
---------- ---------- ---------- ----------
Total interest income .. 3,557,324 3,510,368 7,114,314 6,873,652
---------- ---------- ---------- ----------
INTEREST EXPENSE
Deposits ................. 1,613,005 1,467,783 3,151,629 2,778,580
Borrowed money ........... 224,685 406,634 506,718 824,994
---------- ---------- ---------- ----------
Total interest expense . 1,837,690 1,874,417 3,658,347 3,603,574
---------- ---------- ---------- ----------
NET INTEREST INCOME ........ 1,719,634 1,635,951 3,455,967 3,270,078
PROVISION FOR LOAN LOSSES .. 25,000 367,630 99,999 392,630
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,694,634 1,268,321 3,355,968 2,877,448
---------- ---------- ---------- ----------
NONINTEREST INCOME
Service charges, fees
and commissions ........ 327,229 173,283 623,002 332,208
Gain on sale of securities 69,761 -- 168,935 --
Miscellaneous ............ 31 1,000 332 10,786
---------- ---------- ---------- ----------
Total noninterest
income ............... 397,021 174,283 792,269 342,994
---------- ---------- ---------- ----------
NONINTEREST EXPENSE
Compensation & benefits .. 763,087 442,480 1,379,872 866,697
Occupancy ................ 192,692 111,550 342,661 226,352
Data processing .......... 113,543 105,797 227,012 207,651
Federal insurance premium 20,751 18,017 41,109 36,287
Miscellaneous ............ 337,297 240,899 610,524 567,780
---------- ---------- ---------- ----------
Total noninterest
expense .............. 1,427,370 918,743 2,601,178 1,904,767
---------- ---------- ---------- ----------
INCOME BEFORE TAXES ........ 664,285 523,861 1,547,059 1,315,675
INCOME TAXES ............... 291,142 194,657 667,556 491,298
---------- ---------- ---------- ----------
NET INCOME ................. $ 373,143 $ 329,204 $ 879,503 $ 824,377
========== ========== ========== ==========
BASIC EARNINGS PER SHARE ... $ 0.14 $ 0.13 $ 0.34 $ 0.33
DILUTED EARNINGS PER SHARE . $ 0.13 $ 0.13 $ 0.33 $ 0.33
DIVIDENDS PER SHARE ........ $ 0.08 $ 0.07 $ 0.15 $ 0.14
</TABLE>
See accompanying notes to consolidated financial statement.
2
<PAGE>
COMMUNITY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
September 30,
----------------------------
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income ................................... $ 879,503 $ 824,377
Adjustments to reconcile net income to
net cash provided by operating activities
Provision for loan losses ................ 99,999 392,630
Depreciation ............................. 147,214 112,728
Amortization of premium and accretion
of discount on securities, net ......... (124) 387
(Decrease) in net deferred loan fees ..... (17,475) (59,255)
Increase in deferred income taxes ........ 12,309 11,690
Decrease (increase) in other assets ...... (361,393) (179,982)
Increase (decrease) in other liabilities . (49,365) (98,435)
(Gain)loss on sale of loans .............. (42,343) 7,174
Proceeds from sale of loans .............. 13,228,720 1,318,800
Loans originated for resale .............. (14,750,319) (1,764,800)
Gain on sale of available for sale
securities ............................. (168,935) --
------------ ------------
Net cash provided by operating activities .... (1,022,209) 565,314
------------ ------------
INVESTING ACTIVITIES
Proceeds from maturities of held to
maturity securities ........................ 650,000 750,000
Proceeds from sale of available for
sale securities ............................ 172,319 --
Purchases of held to maturity investment
securities ................................. (1,861,793) (2,149,375)
Net decrease (increase) in loans ............. (414,255) (11,940,842)
Purchases of property and equipment .......... (2,085,016) (129,282)
Redemption (purchase) of FHLB stock .......... -- (200,000)
Increase in Real Estate Owned ................ (2,415) --
------------ ------------
Net cash provided (absorbed) by
investing activities ..................... (3,541,160) (13,669,499)
------------ ------------
FINANCING ACTIVITIES
Dividends paid ............................... (384,867) (357,101)
Net increase (decrease) in deposits .......... 6,079,202 11,643,251
Proceeds from advances and other
borrowed money ............................. 4,000,000 48,000,000
Repayments of advances and other
borrowed money ............................. (7,000,000) (45,000,000)
Proceeds from issuance of common stock ....... 108,500 500
------------ ------------
Net cash provided (absorbed) by
financing activities ......................... 2,802,835 14,286,650
------------ ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS .................................. (1,760,534) 1,182,465
CASH AND CASH EQUIVALENTS-beginning of period .. 7,266,145 4,922,213
------------ ------------
CASH AND CASH EQUIVALENTS-end of period ........ $ 5,505,611 $ 6,104,678
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
COMMUNITY FINANCIAL CORPORATION
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998
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 ("Community" or the "Company"),its wholly-owned
subsidiary, Community Bank (the "Bank") and Community First Mortgage
Corporation, a wholly-owned subsidiary of the Bank ("First Mortgage"). 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, 1998, are not
necessarily indicative of the results that may be expected for the year ending
March 31, 1999.
NOTE 2. -- EARNINGS PER SHARE
Basic and diluted earnings per share for the periods presented in 1998 and 1997
are computed under a new accounting standard effective in the quarter ended
December 31, 1997. All prior amounts have been restated to be comparable. Basic
earnings per share is based on net income divided by the weighted average number
of common shares outstanding during the period. Diluted earnings per share shows
the dilutive effect of additional common shares issuable under stock option
plans. Basic earnings per share for the three months ended September 30, 1998
and 1997 have been determined by dividing net income by the weighted average
number of shares of common stock outstanding during these periods (2,569,837 and
2,550,746, respectively).The number of shares used to determine diluted earnings
per share for the same three month periods was 2,590,331 and 2,565,994,
respectively. Basic earnings per share for the six months ended September 30,
1998 and 1997 have been determined by dividing net income by the weighted
average number of shares of common stock outstanding during these periods
(2,567,181 and 2,550,728, respectively).The number of shares used to determine
diluted earnings per share for the same six month periods was 2,604,921 and
2,566,379, respectively.
4
<PAGE>
NOTE 3. -- STOCKHOLDERS' EQUITY
The following table presents the Bank's capital levels at September 30, 1998
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 ..... $ 2,792,000 1.50% $22,540,000 12.11% $19,748,000
Core Capital ......... 7,445,000 4.00 22,540,000 12.11 15,095,000
Risk-based Capital ... 11,233,000 8.00 23,648,000 16.84 12,415,000
</TABLE>
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 September 30, 1998 and 1997 was
$1,849,282 and $1,933,092, respectively. Total interest paid for the six months
ended September 30, 1998 and 1997 was $3,677,502 and $3,656,985. Total income
taxes paid for the three months ended September 30, 1998 and 1997 was $737,382
and $566,392. Total income taxes paid for the six months ended September 30,
1998 and 1997 was $737,382 and $669,392.
5
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
FINANCIAL CONDITION
The Company's total assets increased $ 3.6 million to $187.5 million at
September 30, 1998, due primarily to a increase in loans of $ 1.8 million. The
increase in loans receivable was due primarily to an increase in consumer loans.
Deposits increased $ 6.1 million to $144.2 million at September 30, 1998, from
$138.2 million at March 31, l998 while Federal Home Loan Bank advances decreased
during the same period from $18.0 million to $15.0 million. The increase in
deposits was used primarily to fund the increase in loans and reduce advances.
Stockholders' equity increased to $26.1 million at September 30, 1998, from
$25.5 million at March 31, 1998, due primarily to earnings for the six month
period ended September 30, 1998 which was partially offset by aggregate payments
of $0.15 per share in cash dividends.
At September 30, 1998, the Bank's non-performing assets totaled $463,000 or
0.24% of assets compared to $1.1 million or .60% of assets at March 31, 1998. At
September 30, 1998 the Company's non-performing assets were comprised of one
combination farm and personal residence, a personal residence and two consumer
loans more than ninety days past due. Also included in non-performing assets is
approximately $280,000 of single family residential rental properties, one
residential lot which was acquired by foreclosure and one repossessed vehicle.
In addition to the nonperforming loans, at September 30, 1998, the company had
other loans of concern consisting of two real estate loans to one borrower with
a total balance of $1.5 million, secured primarily by commercial and rental
property. The borrower is in bankruptcy, but the largest loan is current and the
smaller loan is anticipated to be paid off next quarter. The Company believes it
has adequate collateral and will not experience losses. 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. At
September 30, 1998 the Company's allowance for loan losses totaled $1.1 million
or .60% of net loans receivable and 239% of non-performing loans. See "Results
of Operations -- Six Months Ended September 30, 1998 and 1997 -- Provision for
Loan Losses."
Management establishes an allowance for loan losses based on an analysis of risk
factors in the loan portfolio. This analysis includes the evaluation of
concentrations of credit, past loss experience, current economic conditions,
amount and composition of the loan portfolio, estimated fair value of underlying
collateral, loan commitments outstanding, delinquencies, and other factors.
Since the Company has had extremely low loan losses during its history,
management also considers loss experience of similar portfolios in comparable
lending markets. Accordingly, the calculation of the adequacy of the allowance
for loan losses was not based directly on the level of non-performing assets.
Management will continue to monitor the allowance for loan losses through the
provision for loan losses as economic conditions dictate. Although the Company
maintains its allowance for loan losses at a level which it considers to be
adequate to provide for losses, there can be no assurance that future losses
will not exceed estimated amounts or that additional provisions for loan losses
will not be required in future periods. In addition, management's determination
as to the amount of the allowance for loan losses is subject to review by the
Office of Thrift Supervision ("OTS") and the Federal Deposit Insurance
Corporation as part of their examination process, which may result in the
establishment of an additional allowance based upon their judgement of the
information available to them at the time of their examination.
6
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
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, 1998,
the Bank's liquidity ratio (liquid assets as a percentage of net withdrawable
savings and current borrowings) was 8.50%, which exceeds the regulatory
requirement.
The Bank is subject to certain capital to asset requirements in accordance with
Bank regulations. See Note 3 of the Notes to Consolidated Financial Statements
contained in this report.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1998 and 1997.
- - ----------------------------------------------
General. Net income for the three months ended September 30, 1998 was $373,143
compared to $329,204 for the three months ended September 30, 1997. The increase
was due primarily to an increase in noninterest income and a decrease in the
provision for loan losses, offset in part by an increase in noninterest
expenses. Income before income taxes increased to $664,285 for the three months
ended September 30, 1998 from $523,861 for the three months ended September 30,
1997.
Interest Income. Total interest income increased to $3.6 million for the three
months ended September 30, 1998, from $3.5 million for the three months ended
September 30, 1997, due to an increase in the average balance of outstanding
loans for the three months ended September 30, 1998 as compared to the period
ended September 30, 1997. The average yield earned on interest-earning assets
was 8.24% for the three months ended September 30, 1998 compared to 8.22% for
the three months ended September 30, 1997. The average yield increased due to
the Company's shift in its asset mix from one-to four-family loans to higher
yielding consumer loans.
Interest Expense. Total interest expense decreased to $1.8 million for the three
months ended September 30, 1998, from $1.9 million for the three months ended
September 30, 1997. Interest on deposits increased to $1.6 million for the three
months ended September 30, 1998 from $1.5 million for the three months ended
September 30, 1997 due primarily to an increase in the average outstanding
balance of deposits, which was primarily certificates of deposit, for the three
months ended September 30, 1998. Interest expense on borrowed money decreased to
$224,685 for the quarter ended September 30, 1998, from $406,634 for the quarter
ended September 30, 1997, due to a decrease in average borrowings from the
Federal Home Loan Bank. The average rate paid on interest-bearing liabilities
was 4.72% for the three months ended September 30, 1998 compared to 4.82% to the
three months ended September 30, 1997.
7
<PAGE>
Provision for Loan Losses. The provision for loan losses decreased to $25,000
for the three months ended September 30, 1998, from $367,630 for the three
months ended September 30, 1997. The decrease in provision for loan losses is
attributable primarily to the slower growth in the loan portfolio and charge-
offs on one-to-four family loans and foreclosed property for the three months
ended September 30, 1997. "See Financial Condition."
Noninterest Income. Noninterest income increased to $397,021 for the three
months ended September 30, 1998, from $174,283 for the three months ended
September 30, 1997 due primarily to both an increase in service charges and the
gain on the sale of securities. The increase in service charges is due to both
the increase in secondary mortgage loan sales in Community Bank (the "Bank") and
Community First Mortgage ("First Mortgage") and an increase in checking account
charges which is related to an increase in account volume.
Noninterest Expenses. Noninterest expense increased to $1.4 million for the
three months ended September 30, 1998, from $918,743 for the three months ended
September 30, 1997. The increase in noninterest expense is attributable to both
the opening of First Mortgage in Richmond, Virginia and an increase in
compensation and other expenses related to the conversion of the Bank's computer
system.
Taxes. Taxes increased to $291,142 for the three months ended September 30,
1998, from $194,657 for the three months ended September 30, 1997, due to both
an increase in income before taxes and an increase in the Company's effective
state income tax rate.
Six Months Ended September 30, 1998 and 1997
- - --------------------------------------------
General. Net income for the six months ended September 30, 1998 was $879,503
compared to $824,377 for the six months ended September 30, l997 for the same
reasons discussed above. Income before income taxes increased to $1.5 million
for the six months ended September 30, 1998 from $1.3 million for the six months
ended September 30, 1997.
Interest Income. Total interest income increased to $7.1 million for the six
months ended September 30, 1998, from $6.9 million for the six months ended
September 30, 1997, due primarily to an increase in the average balance of loans
outstanding during the period.
Interest Expense. Total interest expense increased to $3.7 million for the six
months ended September 30, 1997, from $3.6 million for the six months ended
September 30, 1997. Interest on deposits, primarily certificates of deposit,
increased to $3.2 million for the six months ended September 30, 1998, from $2.8
million for the same period last year due primarily to an increase in the
average outstanding deposit balances. Interest expense on borrowed money
decreased to $506,718 for the six months ended September 30, 1998 from $824,994
for the six months ended September 30, 1997, due primarily to decreased
borrowings from the Federal Home Loan Bank of Atlanta.
8
<PAGE>
Provision for Loan Losses. The provision for loan losses decreased to $99,999
for the six months ended September 30, 1998, from $392,630 for the same period
last year. The decrease is attributable primarily to slower growth in the loan
portfolio for the six months ended September 30, 1998 and to chargeoffs on
one-to-four family loans for the six months ended September 30, 1997.
Noninterest Income. Noninterest income increased to $792,269 for the six months
ended September 30, 1998, from $342,994 for the six months ended September 30,
1997, due to an increase in the fees and service charges on checking accounts as
the volume of accounts increased, gains associated with the increased number of
fixed rate mortgage loans sold and gains on securities transactions.
Noninterest Expenses. Noninterest expenses increased to $2.6 million for the six
months ended September 30, 1998, from $1.9 million for the same period last
year. The increase in noninterest expense is attributable to both an increase in
compensation and other expenses related to the conversion of the Bank's computer
system and the opening of First Mortgage in Richmond, Virginia.
Taxes. Taxes increased to $667,556 for the six months ended September 30, 1998,
from $491,298 for the six months ended September 30, 1997, due to an increase in
income before taxes for the six months ended September 30, 1998 and an increase
in the Company's effective state income tax rate.
Impact of the Year 2000
The Company has conducted a comprehensive review of its computer
systems to identify applications that could be affected by the "Year 2000"
issue, and has developed an implementation plan to address the issue. The
Company's data processing and other critical systems are supplied by outside
vendors. The Company is scheduled to convert to an in-house Year 2000 compliant
system in November 1998. The Company has already contacted each vendor to
request time tables for Year 2000 compliance and expected costs, if any, to be
passed along to the Company. To date, the Company has been informed that most of
its primary service providers anticipate that all reprogramming efforts will be
completed in enough time to allow for testing. The Company plans to test the
mission critical systems by December 1998 and all non-mission critical systems
by June 1999. Certain other vendors have not yet certified their system as Year
2000 compliant. The Company has identified alternative vendors if current
vendors do not become Year 2000 compliant by June 1, 1999. The Company has
prepared contingency plans for all mission critical systems. Management does not
expect these costs to have a significant impact on its financial position or
results of operations; however, there can be no assurance that the vendors
systems will be Year 2000 compliant, consequently the Company could incur
incremental costs to convert to another vendor. The Company testing to date has
not identified any of its hardware and software that will not be Year 2000
compliant. Any capital expenditures solely for the purpose of being Year 2000
compliant currently are not expected to exceed $50,000.
In addition to expenses related to the Company's own systems, it could
incur losses if loan payments are delayed due to Year 2000 problems affecting
any of its significant borrowers or impairing the payroll systems of large
employers in its market area. These borrowers were selected based on the
aggregate amounts owed to the Company, the type of loans outstanding, and the
perceived Year 2000 risk based on management's knowledge of the loan customers
and their operations. To date, the Company has not been advised by such parties
that they do not have plans in place to address and correct the
9
<PAGE>
issues associated with the Year 2000 problem; however, no assurance can be given
as to the adequacy of such plans or to the timeliness of their implementation.
Currently, due to the types of borrowers doing business with the Company and the
nature of its loans with such borrowers, the Company does consider the Year 2000
issue as part of its underwriting criteria.
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, technology, acceptance of
new products in the market 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.
10
<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.
The Company held an annual meeting (the "Meeting") of stockholders on
July 29, 1998. The following directors were elected at the meeting: Jane C.
Hickok and Dale C. Smith. The following directors term of office continued after
the meeting: Charles F. Anderson, M.D., Charles W. Fairchilds, Thomas W.
Winfree, James R. Cooke, Jr., DDS and Kenneth L. Elmore.
The matters voted on at the Meeting were
(1) The election of two directors.
For Abstentions
--------- -----------
Jane C. Hickok ................ 2,260,185 22,386
Dale C. Smith ................. 2,266,575 15,996
(2) Approval and adoption of an amendment to the Company's
1996 Incentive plan to increase by 120,000 the number of
shares reserved for issuance thereunder.
For Against Abstentions
--------- ------- -----------
2,122,069 129,134 31,368
(3) Ratification of the appointment of BDO Seidman as
independent accountants for the Corporation for the
fiscal year ending March 31, 1999.
For Against Abstentions
--------- ------- -----------
2,261,751 2,500 18,320
11
<PAGE>
Item 5. Other Information
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
See Exhibit Index.
b. Reports on Form 8k
None to be reported.
12
<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: November 7, 1998 By: /s/ R. Jerry Giles
---------------------------
R. Jerry Giles
Chief Financial Officer
(Duly Authorized Officer)
13
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- - ----------- -----------
11 Computation of Per Share Data
27 Financial Data Schedule.
14
EXHIBIT 11
COMMUNITY FINANCIAL CORPORATION
For the Three Months Ended
<TABLE>
<CAPTION>
September 30, 1998 September 30, 1997
------------------------------ ------------------------------
Weighted Weighted
Average Per-Share Average Per Share
Income Shares Amount Income Shares Amount
-------- --------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available to
common stockholders ..... $373,143 2,569,837 $0.14 $329,204 2,550,746 $0.13
Effect of Dilutive
Securities
Options .................. -- 20,494 -- -- 15,248 --
Diluted EPS
Income available to
common stockholders .... $373,143 2,590,331 $0.14 $329,204 2,565,994 $0.13
</TABLE>
COMMUNITY FINANCIAL CORPORATION
For the Six Months Ended
<TABLE>
<CAPTION>
September 30, 1998 September 30, 1997
------------------------------ ------------------------------
Weighted Weighted
Average Per-Share Average Per Share
Income Shares Amount Income Shares Amount
-------- --------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available to
common stockholders ..... $879,503 2,567,181 $0.34 $824,377 2,550,728 $0.33
Effect of Dilutive
Securities
Options .................. -- 37,740 -- -- 15,651 --
Diluted EPS
Income available to
common stockholders .... $879,503 2,604,921 $0.34 $824,377 2,566,379 $0.33
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE QUARTERLY
REPORT ON FORM 10-QSB FOR THE QUARTER ENDED SEPTEMBER 30, 1998 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-31-1999
<PERIOD-END> SEP-30-1998
<CASH> 5,505,611
<INT-BEARING-DEPOSITS> 466,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,911,443
<INVESTMENTS-CARRYING> 4,399,463
<INVESTMENTS-MARKET> 0
<LOANS> 164,309,237
<ALLOWANCE> 0
<TOTAL-ASSETS> 187,494,864
<DEPOSITS> 144,243,375
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,012,056
<LONG-TERM> 15,000,000
0
0
<COMMON> 25,706
<OTHER-SE> 26,059,907
<TOTAL-LIABILITIES-AND-EQUITY> 187,494,864
<INTEREST-LOAN> 6,863,209
<INTEREST-INVEST> 150,089
<INTEREST-OTHER> 101,016
<INTEREST-TOTAL> 7,114,314
<INTEREST-DEPOSIT> 3,151,629
<INTEREST-EXPENSE> 3,658,347
<INTEREST-INCOME-NET> 3,455,967
<LOAN-LOSSES> 99,999
<SECURITIES-GAINS> 168,935
<EXPENSE-OTHER> 2,601,178
<INCOME-PRETAX> 1,547,059
<INCOME-PRE-EXTRAORDINARY> 1,547,059
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 879,503
<EPS-PRIMARY> .34
<EPS-DILUTED> .33
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<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>
