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, 1999
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, 1999,: 2,572,146.
Transitional Small Business Disclosure Format (Check one)
Yes No X
<PAGE>
COMMUNITY FINANCIAL CORPORATION
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Statements of Financial
Condition at September 30, 1999 (unaudited)
and March 31, 1999.............................................1
Consolidated Statements of Income for the Three
and Six Months Ended September 30, 1999 and 1998 (unaudited)...2
Consolidated Statements of Cash Flows for the Six
Months Ended September 30, 1999 and 1998 (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,
1999 1999
------------ -------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash (including interest bearing
deposits of approximately
$1,367,000 and $6,407,000) $ 5,771,044 $ 10,131,157
Securities
Held to maturity 31,348,646 5,561,314
Available for sale 2,642,640 3,543,092
Investment in Federal Home Loan
Bank stock, at cost 1,700,000 1,508,200
Loans receivable, net 178,930,487 171,413,721
Real estate owned 870,478 351,733
Property and equipment, net 6,790,552 6,050,785
Accrued interest receivable
Loans 1,135,827 1,056,833
Investments 212,772 107,912
Prepaid expenses and other assets 911,533 1,085,272
Total Assets $230,313,979 $200,810,019
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $148,021,270 $153,015,076
Borrowings 54,000,000 19,000,000
Advance payments by borrowers for
taxes and insurance 144,283 190,421
Other liabilities 1,753,182 2,220,794
Total Liabilities 203,918,735 174,426,291
Stockholders' Equity
Preferred stock $.01 par value,
authorized 3,000,000 shares,
none outstanding
Common stock, $.01 par value,
authorized 10,000,000 shares,
2,572,146 shares
outstanding 25,721 25,721
Additional paid in capital 4,897,207 4,897,207
Retained earnings 19,864,748 19,395,509
Net unrealized gain on securities
available for sale 1,607,568 2,065,291
Total Stockholders' Equity 26,395,244 26,383,728
Total Liabilities and
Stockholders' Equity $230,313,979 $200,810,019
</TABLE>
See accompanying notes to consolidated financial statements.
1
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COMMUNITY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30 September 30
----------------------------- -----------------------------
1999 1998 1999 1998
----------- ----------- ----------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $3,632,134 $3,423,547 $7,096,323 $6,863,209
Investment securities 180,458 83,401 307,045 150,089
Other 44,657 50,376 85,224 101,016
Total interest income 3,857,249 3,557,324 7,448,592 7,114,314
INTEREST EXPENSE
Deposits 1,559,956 1,613,005 3,133,251 $3,151,629
Borrowed money 419,297 224,685 705,740 506,718
Total interest expense 1,979,253 1,837,690 3,838,991 3,658,347
NET INTEREST INCOME 1,877,996 1,719,634 3,649,601 3,270,078
PROVISION FOR LOAN LOSSES 110,154 25,000 179,154 99,999
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,767,842 1,694,634 3,470,447 3,355,968
NONINTEREST INCOME
Service charges, fees
and commissions 662,836 327,229 1,200,551 623,002
Gain on sale of securities 51,206 69,761 601,412 168,935
Miscellaneous 152,613 31 152,869 332
Total noninterest income 866,655 397,021 1,954,832 792,269
NONINTEREST EXPENSE
Compensation & benefits 1,068,412 763,087 2,153,884 1,379,872
Occupancy 289,105 192,692 557,439 342,661
Data processing 123,815 113,543 236,129 227,012
Federal insurance premium 21,799 20,751 43,098 41,109
Miscellaneous 450,023 337,297 886,714 610,524
Total noninterest expense 1,953,154 1,427,370 3,877,264 2,601,178
INCOME BEFORE TAXES 681,343 664,285 1,548,015 1,547,059
INCOME TAXES 311,738 291,142 667,234 667,556
NET INCOME $ 369,605 $ 373,143 $ 880,781 $ 879,503
BASIC EARNINGS PER SHARE $ 0.14 $ 0.14 $ 0.34 $ 0.34
DILUTED EARNINGS PER SHARE $ 0.14 $ 0.13 $ 0.34 $ 0.34
DIVIDENDS PER SHARE $ 0.08 $ 0.08 $ 0.16 $ 0.15
</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,
---------------------------
1999 1998
----------- -----------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $880,781 $879,503
Adjustments to reconcile net income to
net cash provided by operating activities
Provision for loan losses 179,154 99,999
Depreciation 301,097 147,214
Amortization of premium and accretion
of discount on securities, net 996 (124)
(Decrease) in net deferred loan fees (63,412) (17,475)
Increase in deferred income taxes 56,779 12,309
(Increase) in other assets (10,115) (361,393)
Increase (decrease) in other liabilities (138,577) (49,365)
(Gain)loss on sale of loans (471,770) (42,343)
Proceeds from sale of loans 31,768,091 13,228,720
Loans originated for resale (34,296,135) (14,750,319)
Gain on sale of available for sale
securities (601,412) (168,935)
Net cash absorbed by operating activities (2,394,523) (1,022,209)
INVESTING ACTIVITIES
Proceeds from maturities of held to
maturity securities 500,000 650,000
Proceeds from sale of available for
sale securities 612,189 172,319
Purchases of held to maturity
securities (26,250,000) (1,861,793)
Net decrease (increase) in loans (4,671,021) (414,255)
Purchases of property and equipment (1,040,864) (2,085,016)
Redemption (purchase) of FHLB stock (191,800) ---
Increase in Real Estate Owned (518,745) (2,415)
Net cash absorbed by
investing activities (31,560,241) (3,541,160)
FINANCING ACTIVITIES
Dividends paid (411,543) (384,867)
Net increase (decrease) in deposits (4,993,806) 6,079,202
Proceeds from advances and other
borrowed money 71,000,000 4,000,000
Repayments of advances and other
borrowed money (36,000,000) (7,000,000)
Proceeds from issuance of common stock --- 108,500
Net cash provided by
financing activities 29,594,651 2,802,835
INCREASE IN CASH AND CASH EQUIVALENTS (4,360,113) (1,760,534)
CASH AND CASH EQUIVALENTS-beginning of period 10,131,157 7,266,145
CASH AND CASH EQUIVALENTS-end of period $5,771,044 $5,505,611
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
COMMUNITY FINANCIAL CORPORATION
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999
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, 1999, are not
necessarily indicative of the results that may be expected for the year ending
March 31, 2000.
NOTE 2. - EARNINGS PER SHARE
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,
1999 and 1998 have been determined by dividing net income by the weighted
average number of shares of common stock outstanding during these periods
2,572,146 and 2,569,837, respectively. The number of shares used to determine
diluted earnings per share for the same three month periods was 2,572,146 and
2,590,331, respectively. Basic earnings per share for the six months ended
September 30, 1999 and 1998 have been determined by dividing net income by the
weighted average number of shares of common stock outstanding during these
periods 2,572,146 and 2,567,181, respectively. The number of shares used to
determine diluted earnings per share for the same six month periods was
2,572,146 and 2,604,921, respectively.
<TABLE>
<CAPTION>
COMMUNITY FINANCIAL CORPORATION
For the Three Months Ended
September 30, 1999 September 30, 1998
-------------------------------- -----------------------------
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 $369,605 2,572,146 $0.14 $373,143 2,569,837 $0.14
Effect of Dilutive
Securities
Options --- --- --- 20,494
Diluted EPS
Income available to
common stockholders $369,605 2,572,146 $0.14 $373,143 2,590,331 $0.13
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY FINANCIAL CORPORATION
For the Six Months Ended
September 30, 1999 September 30, 1998
-------------------------------- -----------------------------
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 $880,781 2,572,146 $0.34 $879,503 2,567,181 $0.34
Effect of Dilutive
Securities
Options --- --- --- 37,740
Diluted EPS
Income available to
common stockholders $880,781 2,572,887 $0.34 $879,503 2,604,921 $0.34
</TABLE>
NOTE 3. - STOCKHOLDERS' EQUITY
The following table presents the Bank's capital levels at September 30, 1999
relative to the requirements applicable under the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ('FIRREA'):
Amount Percent Actual Actual Excess
Required Required Amount Percent Amount
---------- --------- --------- ------- -----------
Tangible Capital $ 3,471,000 1.50% $23,417,000 10.12% $19,946,000
Core Capital 9,257,000 4.00 23,417,000 10.12 14,160,000
Risk-based Capital 12,278,000 8.00 25,822,000 15.26 13,544,000
The Bank may make a capital distribution without the approval of the Office of
Thrift Supervision (the "OTS"), provided that it notifies the OTS 30 days before
it declares the capital distribution and meets the following requirements: (i)
the Bank has a regulatory rating in one of the two top examination categories,
(ii) the Bank is not of supervisory concern, and will remain adequately- or
well-capitalized, as defined in the OTS prompt corrective action regulations,
following the proposed distribution, and (iii) the distribution does not exceed
the Bank's net income for the calendar year-to-date plus retained net income for
the previous two calendar years (less any dividends previously paid). If the
Bank does not meet the above stated requirements, it must obtain the prior
approval of the OTS before declaring any proposed distributions.
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<PAGE>
NOTE 4. - SUPPLEMENTAL INFORMATION - STATEMENT OF CASH FLOWS
Total interest paid for the three months ended September 30, 1999 and 1998 was
$1,921,980 and $1,849,282, respectively. Total interest paid for the six months
ended September 30, 1999 and 1998 was $3,765,784 and $3,677,502. Total income
taxes paid for the three months ended September 30, 1999 and 1998 was $316,197
and $737,382. Total income taxes paid for the six months ended September 30,
1999 and 1998 was $742,168 and $737,382.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
FINANCIAL CONDITION
The Company's total assets increased $29.5 million to $230.3 million at
September 30, 1999, due primarily to an increase in held to maturity securities
of $25.8 million which was funded by reverse repurchase borrowings and FHLB
advances. Approximately $20 million of the increase in securities was part of
the Company's asset/liability strategy to increase net interest income. An
additional $5 million of securities with maturities prior to December 31, 1999
were purchased as part of the Company's Year 2000 contingency plan. Deposits
decreased $5.0 million to $148.0 million at September 30, 1999, from $153.0
million at March 31, l999 while borrowings increased during the same period from
$19.0 million to $54.0 million. The decrease in deposits was due primarily to
increased rate competition on certificates of deposits by other financial
institutions and withdrawals from transaction accounts. Stockholders' equity was
unchanged at $26.4 million at September 30, 1999, from March 31, 1999, due
primarily to earnings for the six month period ended September 30, 1999 which
was offset by aggregate payments of $0.16 per share in cash dividends and a
decrease in the unrealized gain on securities available for sale.
At September 30, 1999, non-performing assets totaled $2.0 million or .80% of
assets compared to $1.1 million or .60% of assets at March 31, 1999.
Non-performing loans totaled $1.1 million or .63 % of total loans at September
30, 1999 compared to $750,000 or .44% of total loans at March 31, 1999. At
September 30, 1999 non-performing assets were comprised of one loan secured by a
certificate of deposit, seven personal residence loans, seven single family
rental properties, a construction loan and three consumer loans more than ninety
days past due. Also included in non-performing assets is approximately $400,000
of single family residential properties and one multi family loan of $454,000
which was acquired by foreclosure. In addition to the nonperforming assets, at
September 30, 1999, the company had other loans of concern consisting of nine
single family loans, four rental real estate loans, two commercial loan with
total balances of $450,000 and unsecured loans with balances of $46,000. Based
on current market values of the collateral securing our non-performing assets
and other loans of concern, management does not anticipate any significant
losses in excess of the reserves for losses previously recorded. While we
currently believe that our loans are adequately secured or reserved for, many of
the loans made by us are secured by residential properties used as vacation
homes or rental properties by the borrowers. In the event the real estate rental
market substantially weakens or economic conditions in our market area
deteriorate, it is possible both that some of these borrowers may default and
that the value of the real estate collateral may be insufficient to fully secure
the loan. In such event, the Company may experience increased levels of
delinquencies and related losses having an adverse impact on net income. At
September 30, 1999 the Company's allowance for loan losses totaled $1.2 million
or .60% of net loans receivable and 61% of non-performing assets. See "Results
of Operations -Six Months Ended September 30, 1999 and 1998 - 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
6
<PAGE>
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 and other factors 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 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.
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, 1999,
the Bank's liquidity ratio (liquid assets as a percentage of net withdrawable
savings and current borrowings) was 13.01%, 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, 1999 and 1998.
- ----------------------------------------------
General. Net income for the three months ended September 30, 1999 was
$369,605 compared to $373,143 for the three months ended September 30, 1998. The
slight decrease was due primarily to an increase in noninterest expenses and an
increase in the provision for loan losses, offset by an increase in noninterest
income and net interest income. Income before income taxes increased to $681,343
for the three months ended September 30, 1999 from $664,285 for the three months
ended September 30, 1998.
Interest Income. Total interest income increased to $3.9 million for the
three months ended September 30, 1999, from $3.6 million for the three months
ended September 30, 1998. The increase in interest income was due primarily to
an increase in the average balance of outstanding loans for the three months
ended September 30, 1999 as compared to the period ended September 30, 1998,
offset by a decrease in the average yield on earnings assets from 8.26% for the
three months ended September 30, 1998 to 8.03% for the three months ended
September 30, 1999.
Interest Expense. Total interest expense increased to $2.0 million for the
three months ended September 30, 1999, from $1.8 million for the three months
ended September 30, 1998. Interest on deposits decreased to $1.5 million for the
three months ended September 30, 1999 from $1.6 million for the three months
ended September 30, 1998 due primarily to a decrease in the average rate paid on
deposits. The average rate paid on deposits for the three months ended September
30, 1999 was 4.17% compared to 4.57% for the same period in the prior year.
Interest expense on borrowed money increased to $419,297 for the quarter ended
September 30, 1999, from $224,685 for the quarter ended September 30, 1998, due
to an increase in average borrowings from the Federal Home Loan Bank. The
average rate paid on interest-bearing liabilities was
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<PAGE>
4.68% for the three months ended September 30, 1999 compared to 4.72% for the
three months ended September 30, 1998.
Provision for Loan Losses. The provision for loan losses increased to
$110,154 for the three months ended September 30, 1999, from $25,000 for the
three months ended September 30, 1998. The increase in provision for loan losses
is attributable primarily to charge-offs on one-to-four family loans and
foreclosed property for the three months ended September 30, 1999. "See
Financial Condition."
Noninterest Income. Noninterest income increased to $866,655 for the three
months ended September 30, 1999, from $397,021 for the three months ended
September 30, 1998 due primarily to both an increase in service charges and the
resolution of expenses related to the Bank's computer conversion. The Bank
converted to an in-house computer system in November 1998 and incurred excessive
expenses of $149,000 related to the conversion which were reimbursed by the
software provider. The increase in service charges, fees and commissions is due
to the increase in secondary mortgage loan sales at Community First Mortgage
("First Mortgage").
Noninterest Expenses. Noninterest expense increased to $2.0 million for
the three months ended September 30, 1999, from $1.4 for the three months ended
September 30, 1998. The increase in noninterest expense is attributable to both
increased staffing as a result of increased loan origination activity and an
increase in compensation and other expenses related to the opening of an
additional office in Staunton, Virginia during the quarter.
Taxes. Taxes increased to $311,738 for the three months ended September
30, 1999, from $291,142 for the three months ended September 30, 1998, due to
both an increase in income before taxes and an increase in the Company's
effective income tax rate to 45.8% for the three months ended September 30, 1999
compared to 43.9% for the three months ended September 30, 1998. The Company's
effective tax rate increased due to increased loan charge-offs which are
nondeductible.
Six Months Ended September 30, 1999 and 1998
- --------------------------------------------
General. Net income for the six months ended September 30, 1999 was
$880,781 compared to $879,503 for the six months ended September 30, l998 for
the same reasons discussed above. Income before income taxes remained unchanged
at $1.5 million for the six months ended September 30, 1999 and September 30,
1998.
Interest Income. Total interest income increased to $7.4 million for the
six months ended September 30, 1999, from $7.1 million for the six months ended
September 30, 1998, due primarily to an increase in the average balance of loans
and investment securities outstanding during the period, offset by a decrease in
the yield on loans and securities from 8.26% to 8.05% for the same period.
Interest Expense. Total interest expense increased to $3.8 million for the
six months ended September 30, 1999, from $3.7 million for the six months ended
September 30, 1998. Interest on deposits remained unchanged at $3.1 million for
the six months ended September 30, 1999, from the same period last year due
primarily to an increase in the average outstanding deposit balances offset by a
decrease in the rate paid. The rate paid on deposits decreased from 4.57% for
the six months ended September 30, 1998 to 4.21% for the same period in the
current fiscal year. Interest expense on borrowed money increased to $705,740
for the six months ended September 30, 1999 from $506,718 for the six months
ended September 30, 1998, due primarily to increased borrowings.
Provision for Loan Losses. The provision for loan losses increased to
$179,154 for the six months ended September 30, 1999, from $ 99,999 for the same
period last year. The increase is attributable primarily to increased
charge-offs on one-to-four family loans and foreclosed property for the six
months ended September 30, 1999 compared to the six months ended September 30,
1998.
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Noninterest Income. Noninterest income increased to $1,954,832 for the six
months ended September 30, 1999, from $792,269 for the six months ended
September 30, 1998, due to an increase in service charges, fees, commissions and
gains on securities transactions and the reimbursement of $149,000 in computer
expenses as described above.
Noninterest Expenses. Noninterest expenses increased to $3.8 million for
the six months ended September 30, 1999, from $2.6 million for the same period
last year. The increase in noninterest expense is attributable to both an
increase in compensation due to increased staffing and other expenses related to
growth in Community Bank and Community First Mortgage as described above.
Taxes. Taxes were relatively unchanged at $667,234 for the six months
ended September 30, 1999, from $667,556 for the six months ended September 30,
1998.
YEAR 2000 ISSUES
The approaching millennium is causing organizations of all types to review
their computer systems for the ability to properly accommodate the year 2000.
When computer systems were first developed, two digits were used to designate
the year in date calculations and "19" was assumed for the century. As a result,
there is significant concern about the integrity of date sensitive calculations
when the calendar rolls over to January 1, 2000. An older system could interpret
01/01/00 as January 1, 1900, potentially causing major problems calculating
information related to interest, principal payments, delinquencies or maturity
dates. An internal committee comprised of senior officers and management has
been formed to address the potential risk that the year 2000 poses for
Community. This committee reports to the full board of directors quarterly or
more often as warranted.
Financial institution regulators have issued guidance concerning the
responsibilities of senior management and directors. The Federal Financial
Institutions Examination Council has issued several interagency statements on
Year 2000 Project Management Awareness. These statements require financial
institutions to, among other things, examine the year 2000 issue with respect to
their customers, suppliers and borrowers. These statements also require each
federally insured financial institution to survey its exposure, measure its risk
and prepare a plan to address the year 2000 issue. In addition, the federal
banking regulators have issued safety and soundness guidelines to be followed by
insured depository institutions to assure resolution of any year 2000 problems.
Accurate data processing is essential to our operations and a lack of
accurate processing by our vendors or us could have a significant adverse impact
on our financial condition and results of operations. Based on our testing, we
believe that our in-house data processing operations will function properly on
and after January 1, 2000. A contingency plan, however, has been developed by us
in the unlikely event that our data processing operations do not function
properly on or after January 1, 2000. This plan focuses on conducting operations
in a manual mode, including the recording of transactions on spreadsheets.
We have also received year 2000 updates from most of our material,
non-information system providers, including but not limited to security cameras,
credit card and ATM card processors, the vault alarm, check printers, telephone
systems, participation loan servicers, and institutions we invest through or
with. Based on these updates, we do not anticipate any significant year 2000
issues. Our future expense to be year 2000 compliant is immaterial.
In addition to expenses related to our own systems, we could incur losses
if loan payments are delayed due to year 2000 problems affecting any of our
significant borrowers or impairing the payroll systems of large employers in our
market area. We have been communicating with our vendors to assess
9
<PAGE>
their progress in evaluating their systems and implementing any corrective
measures required by them to be prepared for the year 2000. We have been advised
by such parties that they have plans in place to address and correct the issues
associated with the year 2000 problem; however, no assurance can be given as to
the adequacy of these plans or to the timeliness of their implementation. We
consider the year 2000 issue as part of our underwriting criteria.
Forward-Looking Statements
This Quarterly Report on Form 10-QSB contains certain forward-looking statements
with respect to our financial condition, results of operations and business.
These forward-looking statements involve certain risks and uncertainties. When
used in this Quarterly Report on Form 10-QSB or future filings by us with the
Securities and Exchange Commission, in our 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. We wish 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 our financial
performance and could cause our actual results for future periods to differ
materially from those anticipated or projected.
We do not undertake and specifically disclaim any obligation to publicly release
the result of any revisions, which may be made to any forward-looking statements
to reflect 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
28, 1999. The following directors were elected at the meeting: Charles F.
Anderson, M.D., Charles W. Fairchilds, Thomas W. Winfree. The following
directors term of office continued after the meeting: Jane C. Hickok, Dale C.
Smith, James R. Cooke, Jr., DDS and Kenneth L. Elmore.
The matters voted on at the Meeting were
(1) The election of three directors.
For Withheld
Charles F. Andersen 2,388,211 2,700
Charles W. Fairchilds 2,385,151 5,760
Thomas W. Winfree 2,351,254 39,657
(2) Ratification of the appointment of BDO Seidman, LLP as independent
accountants for the Company for the fiscal year ending March 31, 2000.
For Against Abstentions
2,384,811 0 6,100
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 8-K
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 15, 1999
By: /s/ R. Jerry Giles
-------------------------------
R. Jerry Giles
Chief Financial Officer
(Duly Authorized Officer and Principal
Accounting Officer)
EXHIBIT INDEX
Exhibit No. Description
27 Financial Data Schedule.
<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, 1999 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-31-2000
<PERIOD-END> SEP-30-1999
<CASH> 5,771,044
<INT-BEARING-DEPOSITS> 1,367,000
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,642,640
<INVESTMENTS-CARRYING> 31,348,646
<INVESTMENTS-MARKET> 0
<LOANS> 178,930,487
<ALLOWANCE> 1,200,000
<TOTAL-ASSETS> 230,313,979
<DEPOSITS> 148,021,270
<SHORT-TERM> 54,000,000
<LIABILITIES-OTHER> 1,753,182
<LONG-TERM> 0
0
0
<COMMON> 25,721
<OTHER-SE> 26,369,523
<TOTAL-LIABILITIES-AND-EQUITY> 230,313,979
<INTEREST-LOAN> 7,096,323
<INTEREST-INVEST> 307,045
<INTEREST-OTHER> 85,224
<INTEREST-TOTAL> 7,488,592
<INTEREST-DEPOSIT> 3,133,251
<INTEREST-EXPENSE> 3,838,991
<INTEREST-INCOME-NET> 3,649,601
<LOAN-LOSSES> 179,154
<SECURITIES-GAINS> 601,412
<EXPENSE-OTHER> 3,877,264
<INCOME-PRETAX> 1,548,015
<INCOME-PRE-EXTRAORDINARY> 1,548,015
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 880,781
<EPS-BASIC> .34
<EPS-DILUTED> .34
<YIELD-ACTUAL> 0
<LOANS-NON> 2,000,000
<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>
