<PAGE>
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 DECEMBER 31, 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 per share, $.01, outstanding at the
close of business on February 8, 1999: 2,572,146.
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 December 31, 1998 (unaudited)
and March 31, 1998.............................................1
Consolidated Statements of Income for the Three and Nine
months Ended December 31, 1998 and 1997 (unaudited)............2
Consolidated Statements of Cash Flows for the Nine
Months Ended December 31, 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............................5
PART II. OTHER INFORMATION ............................................11
Signature Page................................................12
Exhibit Index.................................................13
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COMMUNITY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31, March 31,
1998 1998
------------ -------------
Unaudited)
<S> <C> <C>
ASSETS
Cash (including interest bearing
deposits of approximately
$6,980,231 and $2,866,000) $ 12,428,964 $ 7,266,145
Securities
Held to maturity 4,405,678 3,184,241
Available for sale 4,434,589 3,905,055
Investment in Federal Home Loan
Bank stock, at cost 1,600,000 1,600,000
Loans receivable, net 161,151,103 162,471,219
Real estate owned 226,310 303,365
Property and equipment, net 5,912,766 3,634,223
Accrued interest receivable
Loans 1,008,420 945,365
Investments 133,554 86,424
Prepaid expenses and other assets 1,207,189 498,137
$192,508,573 $183,894,174
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $148,140,938 $138,164,173
Advances from Federal Home Loan
Bank 15,000,000 18,000,000
Advance payments by borrowers for
taxes and insurance 148,238 175,053
Other liabilities 2,412,423 2,040,188
Total Liabilities 165,701,599 158,379,414
Stockholders' Equity
Preferred stock $.01 par value,
authorized 3,000,000 shares,
none outstanding
Common stock, $.01 par value,
authorized 10,000,000 shares,
2,572,146 and 2,559,446 shares
outstanding 25,721 25,594
Additional paid in capital 4,897,207 4,773,634
Retained earnings 19,246,370 18,344,373
Net unrealized gain on securities
available for sale 2,637,676 2,371,159
Total Stockholders' Equity 26,806,974 25,514,760
$192,508,573 $183,894,174
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
December 31, December 31,
------------------ -----------------
1998 1997 1998 1997
-------- ------ ------ ------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans 3,388,985 $3,387,279 $10,252,194 $9,940,155
Investment securities 98,495 118,382 248,584 378,684
Other 86,831 32,472 187,847 92,946
Total interest income 3,574,311 3,538,133 10,688,625 10,411,785
INTEREST EXPENSE
Deposits 1,669,592 1,520,598 4,821,221 4,299,177
Borrowed money 229,918 363,245 736,636 1,188,240
Total interest expense 1,899,510 1,883,843 5,557,857 5,487,417
NET INTEREST INCOME 1,674,801 1,654,290 5,130,768 4,924,368
PROVISION FOR LOAN LOSSES 36,000 25,001 135,999 417,631
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 1,638,801 1,629,289 4,994,769 4,506,737
NONINTEREST INCOME
Service charges, fees
and commissions 388,192 206,597 1,010,059 538,805
Gain on sale of securities 639,581 -- 808,516 --
Miscellaneous 1,805 636 3,272 11,422
Total noninterest
income 1,029,578 207,233 1,821,847 550,227
NONINTEREST EXPENSE
Compensation & benefits 1,016,665 488,816 2,396,537 1,355,513
Occupancy 164,913 125,311 507,574 351,663
Data processing 128,948 99,581 355,960 307,233
Federal insurance premium 19,638 18,235 60,747 54,521
Miscellaneous 304,792 252,132 915,316 819,912
Total noninterest
expense 1,634,956 984,075 4,236,134 2,888,842
INCOME BEFORE TAXES 1,033,423 852,447 2,580,482 2,168,122
INCOME TAXES 420,290 313,349 1,087,846 804,647
NET INCOME $ 613,133 $ 539,098 $1,492,636 $1,363,475
BASIC EARNINGS PER SHARE $0.24 $0.21 $0.58 $0.54
DILUTED EARNINGS PER SHARE $0.24 $0.21 $0.58 $0.53
DIVIDENDS PER SHARE $0.08 $0.07 $0.23 $0.21
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
COMMUNITY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
December 31,
---------------------------
1998 1997
----------- -----------
<S> <C> <C>
(Unaudited)
OPERATING ACTIVITIES
Net income $ 1,492,636 $ 1,363,475
Adjustments to reconcile net income to
net cash provided by operating activities
Provision for loan losses 135,999 417,630
Depreciation 191,385 171,278
Amortization of premium and accretion
of discount on securities, net (153) (1,054)
(Decrease) in net deferred loan fees (20,859) (85,313)
Increase in deferred income taxes 4,031 11,389
Decrease (increase) in other assets (742,182) (252,926)
Increase (decrease) in other liabilities 345,420 (252,892)
(Gain)loss on sale of loans (145,496) 6,079
Proceeds from sale of loans 23,121,012 2,078,400
Loans originated for resale (23,856,772) (2,359,400)
Gain on sale of available for sale
securities (808,516) --
Net cash provided (absorbed)by operating
activities (283,495) 1,096,666
INVESTING ACTIVITIES
Proceeds from maturities of held for
investment securities 1,200,000 2,550,000
Purchases of investment securities (2,421,437) (2,149,375)
Proceeds from sale of available for
sale securities 821,698 --
Net decrease (increase) in loans 1,806,154 (11,517,190)
Purchases of property and equipment (2,469,928) (157,858)
Redemption (purchase) of FHLB stock -- (200,000)
Net cash provided (absorbed) by
investing activities (1,063,513) (11,474,423)
FINANCING ACTIVITIES
Dividends paid (590,638) (535,898)
Net increase in deposits 9,976,765 16,367,632
Proceeds from advances and other
borrowed money 4,000,000 76,000,000
Repayments of advances and other
borrowed money (7,000,000) (79,000,000)
Proceeds from issuance of common stock 123,700 9,501
Net cash provided (absorbed) by
financing activities 6,509,827 12,841,235
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 5,162,819 2,463,478
CASH AND CASH EQUIVALENT-beginning of period 7,266,145 4,922,213
CASH AND CASH EQUIVALENTS-end of period $ 12,428,964 $ 7,385,691
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
COMMUNITY FINANCIAL CORPORATION
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
December 31, 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(the "Company"), its wholly-owned subsidiary,
Community Bank(the "Bank") and Community First Mortgage Corporation, a
wholly-owned subsidiary of the Bank ("First Mortgage"). First Mortgage was
incorporated on November 12, 1997. 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 nine months ended December 31,
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 December 31, 1998 and
1997 have been determined by dividing net income by the weighted average number
of shares of common stock outstanding during these periods (2,571,694 and
2,553,482, respectively).The number of shares used to determine diluted earnings
per share for the same three month periods is 2,573,226 and 2,578,370,
respectively. Earnings per share for the nine months ended December 31, 1998 and
1997 have been determined by dividing net income by the weighted average number
of shares of common stock outstanding during these periods (2,568,691 and
2,551,650, respectively). The number of shares used to determine diluted
earnings per share for the same nine month periods as above was 2,594,982 and
2,569,892, respectively.
NOTE 3. - REGULATORY CAPITAL AND DIVIDENDS DISCUSSION
The following table presents the Bank's capital levels at December 31,
1998, relative to the Office of Thrift Supervision (the "OTS")requirements
applicable at that date:
<TABLE>
<CAPTION>
Amount Percent Actual Actual Excess
Required Required Amount Percent Amount
---------- --------- --------- ------- -----------
<S> <C> <C> <C> <C> <C>
Tangible Capital $ 2,870,000 1.50% $23,151,000 12.10% $20,281,000
Core Capital 7,654,000 4.00 23,151,000 12.10 15,497,000
Risk-based Capital 11,395,000 8.00 24,290,000 17.05 12,895,000
</TABLE>
NOTE 3. - REGULATORY CAPITAL AND DIVIDEND DISCUSSION (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" association to make capital
<PAGE>
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
requires prior notice to the OTS with the opportunity for the OTS to object to
the distribution. A Tier 1 association is defined as an association that has
capital immediately prior to and on a pro forma basis after the proposed
distribution, 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
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 December 31, 1998 and 1997
was $1,904,816 and $1,902,043, respectively. Total interest paid for the nine
months ended December 31, 1998 and 1997 was $5,582,318 and $5,559,029. Total
income taxes paid for the three months ended December 31, 1998 and 1997 was
$217,482 and $375,382. Total income taxes paid for the nine months ended
December 31, 1998 and 1997 was $987,444 and $1,045,174.
NOTE 5. - COMPREHENSIVE INCOME
FASB Statement No. 130, " Reporting Comprehensive Income", effective for
fiscal years beginning on or after January 1, 1998, establishes standards for
reporting and displaying comprehensive income and its components. Comprehensive
income is defined as "the change in equity (net assets) of a business enterprise
during a period from transactions and other events and circumstances from
non-owner sources. It includes all changes in equity during a period except
those resulting from investments by owners and distributions to owners."
Comprehensive income for the Bank includes net income and unrealized gains and
losses on securities available for sale. The following tables set forth the
components of comprehensive income for the three- and nine-months ended December
31, 1998 and 1977:
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended December 31
---------------------------------
1998 1997
--------- ---------
(Amounts in thousands)
<S> <C> <C>
Net income $ 613,133 $ 539,098
Other comprehensive income,
net of tax
Unrealized gains on securities:
Unrealized holding gains(losses)
arising during the period 698,555 341,320
Less: Reclassification
adjustment for gains(losses)
included in net income (379,465) --
--------- ---------
$ 932,223 $ 880,418
========= =========
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended December 31
---------------------------------
1998 1997
---------- ----------
(Amounts in thousands)
<S> <C> <C>
Net income $1,492,636 $1,363,475
Other comprehensive income,
net of tax
Unrealized gains on securities:
Unrealized holding gains(losses)
arising during the period 805,262 749,627
Less: Reclassification
adjustment for gains(losses)
included in net income (468,939) ---
----------- ----------
$1,828,959 $2,113,102
========== ==========
</TABLE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
FINANCIAL CONDITION
The Company's total assets increased $8.6 million to $192.5 million at
December 31, 1998, due primarily to an increase in cash of $5.2 million and a
$2.3 million increase in property and equipment due to the conversion of the
Bank's computer system and the opening of the Virginia Beach branch. These
increases were funded primarily by an increase in interest bearing deposits and
the repayment of variable rate mortgage loans. Deposits increased $10.0 million
to $148.1 million at December 31, 1998, from $138.2 million at March 31, l998.
The increase in deposits was also used to repay $3.0 million of Federal Home
Loan Bank ("FHLB") advances. Stockholders' equity increased to $26.8 million at
December 31, 1998, from $25.5 million at March 31, 1998, due primarily to
earnings for the nine month period ended December 31, 1998 and an adjustment in
the market value of Federal Home Loan Mortgage Corporation stock, which was
partially offset by the payment of cash dividends.
At December 31, 1998, the Bank's non-performing assets totaled $815,000 or
0.42% of total assets compared to $1.1 million or .60% of total assets at March
31, 1998. At December 31, 1998 the Company's non-performing assets were
comprised of one mixed use commercial and residential property, six residential
rental properties and two unsecured consumer loans more than ninety days past
due. Also included in non-performing assets were approximately $220,000 of
single family residential rental properties and one residential lot which was
acquired by foreclosure. In addition to the nonperforming loans, at December 31,
1998, the Company had a concern in regard to a real estate loan to one borrower
with a total balance of $1.3
<PAGE>
million, secured primarily by commercial and rental property. The borrower is in
bankruptcy, but the loan is performing in accordance with its repayment terms.
Management anticipates no significant losses in excess of the reserves for
losses previously recorded. At December 31, 1998 the Company's allowance for
loan losses totaled $1.1 million or .70% of net loans receivable and 139% of
non-performing loans. See "Results of Operations -Three Months Ended December
31, 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
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
The Company's principal sources of funds are deposits, principal and
interest repayments on loans, interest-bearing deposits and securities available
for sale. While scheduled loan repayments and maturing investments are
relatively predictable , deposit flows and early loan prepayments are more
influenced by interest rates, general economic conditions and competition.
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 December 31, 1998,
the Bank's liquidity ratio (liquid assets as a percentage of net withdrawable
savings and current borrowings) was 13.4%, which exceeded the regulatory
requirement of 4.00%.
The Company uses its liquidity resources principally to meet ongoing
commitments, to fund maturing certificates of deposit and deposit withdrawals,
and to meet operation expenses. The Company anticipates that it will have
sufficient funds available to meet current loan commitments. At December 31,
1998, the Company had outstanding commitments to extend credit which amounted to
$19.6 million (including $1.5 million in available home equity lines of credit).
At December 31, 1998, the Company had $15.0 million in advances from the
FHLB-Atlanta. Management believes that loan repayments and other sources of
funds, including Federal Home Loan Bank borrowings, will be adequate to meet the
Company's foreseeable liquidity needs.
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.
<PAGE>
RESULTS OF OPERATIONS
Three Months Ended December 31, 1998 and 1997.
- ----------------------------------------------
General. Net income for the three months ended December 31, 1998 was
$613,000 compared to $539,000 for the three months ended December 31, 1997. The
increase was due primarily to an increase in noninterest income which was offset
in part by an increase in noninterest expenses. Income before taxes increased to
$1,033,000 for the three months ended December 31, 1998 from $852,000 for the
three months ended December 31, 1997.
Interest Income. Total interest income increased to $3.6 million for the
three months ended December 31, 1998, from $3.5 million for the three months
ended December 31, 1997, due primarily to an increase in the balances of
interest-earning deposits for the three months ended December 31, 1998 as
compared to the period ended December 31, 1997.
Interest Expense. Total interest expense was relatively unchanged for the
three months ended December 31, 1998 compared to the three months ended December
31, 1997. Interest on deposits increased to $1.7 million for the three months
ended December 31, 1998 from $1.5 million for the three months ended December
31, 1997 due primarily to an increase in the average outstanding balance of
deposits, primarily certificates of deposit. Interest expense on borrowed money
decreased to $230,000 for the quarter ended December 31, 1998, from $363,000 for
the quarter ended December 31, 1997, due to a decrease in the average
outstanding balance of FHLB advances. The average rate paid on interest-bearing
liabilities was 4.65% for the three months ended December 31, 1998 compared to
4.83% for the three months ended December 31, 1997.
Provision for Loan Losses. The provision for loan losses increased to
$36,000 for the three months ended December 31, 1998, from $25,001 for the three
months ended December 31, 1997. The increase in the provision for loan losses
was attributable primarily to a change in the composition of the loan portfolio
with an increase in consumer and commercial lending. See -- "Financial
Condition."
Noninterest Income. Noninterest income increased to $1.0 million for the
three months ended December 31, 1998, from $207,000 for the three months ended
December 31, 1997 due primarily to a gain on the sale of securities and to a
lesser extent an increase in service charges, fees and commissions. The increase
in service charges is due to an increase in secondary mortgage loan sales.
Noninterest Expenses. Noninterest expense increased to $1.6 million for the
three months ended December 31, 1998, from $984,000 for the three months ended
December 31, 1997. The increase in noninterest expense was primarily
attributable to an increase in compensation and other expenses related to the
conversion of the Bank's computer system, the opening in November, 1997 of First
Mortgage which operates in Richmond, Virginia and the general growth of the
bank. First Mortgage was formed to originate mortgage loans for resale on the
secondary market.
Taxes. Taxes increased to $420,000 for the three months ended December 31,
1998, from $313,000 for the three months ended December 31, 1997, due to both an
increase in income before taxes and an increase in the Company's effective state
income tax rate.
Nine Months Ended December 31, 1998 and 1997
- --------------------------------------------
General. Net income for the nine months ended December 31, 1998 was $1.5
million compared to $1.4 million for the nine months ended December 31, l997.
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 $2.6 million for
the nine months ended December 31, 1998 from $2.2 million for the nine months
ended December 31, 1997.
<PAGE>
Interest Income. Total interest income increased to $10.7 million for the
nine months ended December 31, 1998, from $10.4 million for the nine months
ended December 31, 1997, due primarily to an increase in the average balance of
loans receivable.
Interest Expense. Total interest expense increased slightly to $5.6 million
for the nine months ended December 31, 1998, from $5.5 million for the nine
months ended December 31, 1997. Interest on deposits, primarily certificates of
deposit, increased to $4.8 million for the nine months ended December 31, 1998,
from $4.3 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 $737,000 for the nine months ended December 31, 1998 from $1.2
million for the nine months ended December 31, 1997, due to a decrease in
average borrowings from the FHLB-Atlanta.
Provision for Loan Losses. The provision for loan losses decreased to
$136,000 for the nine months ended December 31, 1998, from $418,000 for the same
period last year. The decrease was attributable primarily to slower growth in
the loan portfolio for the nine months ended December 31, 1998 and to chargeoffs
on one-to-four family loans during the nine months ended December 31, 1997.
Noninterest Income. Noninterest income increased to $1.8 million for the
nine months ended December 31, 1998, from $550,000 for the nine months ended
December 31, 1997, due to gains associated with the increased number of fixed
rate mortgage loans sold, gains on sales of securities and an increase in the
fees and service charges earned on checking accounts as the volume of accounts
increased.
Noninterest Expenses. Noninterest expenses increased to $4.2 million for
the nine months ended December 31, 1998, from $2.9 million for the same period
last year. The increase in noninterest expense was 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.
<PAGE>
Taxes. Taxes increased to $1.1 million for the nine months ended December
31, 1998, from $805,000 for the nine months ended December 31, 1997, due to an
increase in income before taxes for the nine months ended December 31, 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 converted 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 March 1999 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 is preparing 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. The Company has spent approximately $40,000 to date on becoming
Year 2000 compliant.
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 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 the Company. These forward-looking statements involve certain risks
and uncertainties. When used in this Quarterly Report on Form 10-QSB or
<PAGE>
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>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable.
Item 2. Changes in Securities and Use of Proceeds
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
(a) See Exhibit Index
(b) No Reports on Form 8-k were filed during the quarter ended December
31, 1998.
<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: February 26, 1999
By: (s) R. Jerry Giles
-------------------------------
R. Jerry Giles
Chief Financial Officer
(Duly Authorized Officer)
COMMUNITY FINANCIAL CORPORATION
EXHIBIT INDEX
Exhibit No. Description
11 Computation of Per Share Earnings.
27 Financial Data Schedule (Edgar Only).
<TABLE>
<CAPTION>
For the Three Months Ended
December 31, 1998 December 31, 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 $613,133 2,571,694 $0.24 $539,098 2,553,482 $0.21
Effect of Dilutive
Securities
Options --- 1,532 --- --- 24,888
Diluted EPS
Income available to
common stockholders $613,133 2,573,226 $0.24 $539,098 2,578,370 $0.21
====================================================================
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months Ended
December 31, 1998 December 31, 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 $1,492,636 2,568,691 $0.58 $1,363,475 2,551,650 $0.54
Effect of Dilutive
Securities
Options --- 26,291 --- --- 18,242
Diluted EPS
Income available to
common stockholders $1,492,636 2,594,982 $0.58 $1,363,475 2,569,892 $0.53
===========================================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> DEC-31-1998
<CASH> 12,428,964
<INT-BEARING-DEPOSITS> 6,980,231
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,434,589
<INVESTMENTS-CARRYING> 4,405,678
<INVESTMENTS-MARKET> 0
<LOANS> 161,151,103
<ALLOWANCE> 1,139,166
<TOTAL-ASSETS> 192,508,573
<DEPOSITS> 148,140,938
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,412,423
<LONG-TERM> 15,000,000
0
0
<COMMON> 25,721
<OTHER-SE> 26,781,253
<TOTAL-LIABILITIES-AND-EQUITY> 192,508,573
<INTEREST-LOAN> 10,252,194
<INTEREST-INVEST> 248,584
<INTEREST-OTHER> 187,847
<INTEREST-TOTAL> 10,688,625
<INTEREST-DEPOSIT> 4,821,221
<INTEREST-EXPENSE> 5,557,857
<INTEREST-INCOME-NET> 5,130,768
<LOAN-LOSSES> 135,999
<SECURITIES-GAINS> 808,516
<EXPENSE-OTHER> 4,236,134
<INCOME-PRETAX> 2,580,482
<INCOME-PRE-EXTRAORDINARY> 2,580,482
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,087,846
<EPS-PRIMARY> .58
<EPS-DILUTED> .58
<YIELD-ACTUAL> 0
<LOANS-NON> 815,000
<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>
