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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 0-26292
COMMUNITY FINANCIAL CORP.
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(Exact name of registrant as specified in its charter)
ILLINOIS 37-1337630
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
240 E. CHESTNUT STREET, OLNEY, ILLINOIS 62450-2295
- ---------------------------------------- ------------
(Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code: (618) 395-8676
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Indicate by check mark whether the registrant (1) has 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
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety days. Yes X No_____
-----
As of July 31, 1996, the Registrant had 2,512,750 shares of Common Stock
issued and outstanding.
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CONTENTS
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Page
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PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1996
and December 31, 1995............................................ 3
Consolidated Statements of Income for the Three-Month and Six-Month
Periods Ended June 30, 1996 and 1995............................. 4
Consolidated Statements of Cash Flows for the Three-Month and Six-Month
Period Ended June 30, 1996 and 1995.............................. 5
Consolidated Statements of Stockholders' Equity for the
Six-Month Period Ended June 30, 1996............................. 7
Notes to Consolidated Financial Statements............................... 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................. 9
PART II. OTHER INFORMATION
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Item 1. Legal Proceedings........................................................ 13
Item 2. Changes in Securities.................................................... 13
Item 3. Defaults Upon Senior Securities.......................................... 13
Item 4. Submission of Matters to a Vote of Security-Holders...................... 13
Item 5. Other Information........................................................ 13
Item 6. Exhibits and Reports on Form 8-K......................................... 13
SIGNATURES......................................................................... 14
</TABLE>
2
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PART 1 - FINANCIAL INFORMATION
COMMUNITY FINANCIAL CORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
ASSETS 1996 1995
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<S> <C> <C>
CASH AND CASH EQUIVALENTS:
CASH $ 1,349 $ 1,255
INTEREST BEARING DEPOSITS 5,221 8,622
-------- --------
TOTAL CASH AND CASH EQUIVALENTS 6,570 9,877
TIME DEPOSITS 0 0
SECURITIES AVAILABLE FOR SALE (amortized cost
of $17,465 (1996) and $19,527 (1995)) 17,109 19,347
SECURITIES HELD TO MATURITY (estimated market value
of $3,048 (1996) and $3,112 (1995)) 3,075 3,113
MORTGAGE-BACK & RELATED SECURITIES AVAILABLE FOR SALE
(amortized cost of $32,043 (1996) and $35,434(1995)) 31,447 35,520
LOANS RECEIVABLE, net 120,117 114,494
FORECLOSED REAL ESTATE, net 24 5
REAL ESTATE HELD FOR SALE 0 132
ACCRUED INTEREST RECEIVABLE 1,236 1,218
PREMISES AND EQUIPMENT, net 2,638 2,364
DEFERRED INCOME TAXES 624 280
OTHER ASSETS 560 163
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TOTAL ASSETS $183,400 $186,513
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
DEPOSITS $138,381 $144,277
FEDERAL HOME LOAN BANK ADVANCES 6,500 3,000
REPURCHASE AGREEMENTS 1,928 0
ADVANCES FROM BORROWERS FOR TAXES AND INSURANCE 73 34
ACCRUED INTEREST PAYABLE 130 114
ACCRUED INCOME TAXES 432 535
OTHER LIABILITIES 326 447
-------- --------
TOTAL LIABILITIES $147,770 $148,407
-------- --------
STOCKHOLDER EQUITY:
COMMON STOCK, $.01 PAR VALUE PER SHARE:
7,000,000 SHARES AUTHORIZED; 2,645,000
AND 2,645,000 SHARES ISSUED AT JUNE 30, 1996
AND DECEMBER 31, 1995 $ 26 $ 26
ADDITIONAL PAID-IN CAPITAL 25,281 25,281
TREASURY STOCK (132,250 SHARES) (1,749) --
GUARANTEE OF ESOP INDEBTEDNESS (1,904) (2,116)
SHARES HELD FOR MRP (105,800 SHARES) (1,263) 0
RETAINED EARNINGS-SUBSTANTIALLY RESTRICTED 15,810 14,971
UNREALIZED LOSS ON SECURITIES AVAILABLE FOR SALE,
NET OF RELATED TAXES (571) (56)
-------- --------
TOTAL STOCKHOLDER EQUITY $ 35,630 $ 38,106
-------- --------
COMMITMENTS AND CONTINGENCIES 0.00 0.00
TOTAL LIABILITIES AND STOCKHOLDER EQUITY $183,400 $186,513
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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COMMUNITY FINANCIAL CORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
(UNAUDITED)
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<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
INTEREST INCOME:
INTEREST ON LOANS $2,545 $2,343 $5,045 $4,804
INTEREST ON MORTGAGE-BACKED AND RELATED SECURITIES 528 565 1,086 1,121
INTEREST ON INVESTMENTS AND INTEREST-BEARING DEPOSITS 345 212 742 369
------ ------ ------ ------
TOTAL INTEREST INCOME $3,418 $3,120 $6,873 $6,294
------ ------ ------ ------
INTEREST EXPENSE:
INTEREST ON DEPOSITS $1,589 $1,752 $3,223 $3,327
INTEREST ON OTHER BORROWED FUNDS 68 2 127 14
------ ------ ------ ------
TOTAL INTEREST EXPENSE $1,657 $1,754 $3,350 $3,341
------ ------ ------ ------
NET INTEREST INCOME $1,761 $1,366 $3,523 $2,953
PROVISIONS FOR LOAN LOSSES 40 24 $ (11) $ 67
------ ------ ------ ------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES $1,721 $1,342 $3,534 $2,886
------ ------ ------ ------
NON-INTEREST INCOME:
SERVICE FEES $ 123 $ 121 $ 246 $ 213
INSURANCE AND ANNUITY COMMISSIONS 46 84 92 195
NET GAIN (LOSS) ON SALE OF SECURITIES 0 (5) 0 (5)
GAIN ON SALE OF INSURANCE AGENCY 0 187 0 187
RECOVERY OF LITIGATION SETTLEMENT 0 249 0 249
OTHER 27 18 55 35
------ ------ ------ ------
TOTAL NON-INTEREST INCOME $ 196 $ 654 $ 393 $ 874
------ ------ ------ ------
NON-INTEREST EXPENSE:
COMPENSATION AND BENEFITS $ 662 $ 468 $1,417 $1,076
OCCUPANCY 53 53 105 105
EQUIPMENT AND FURNISHING 90 116 173 169
DATA PROCESSING 103 122 221 201
FEDERAL DEPOSIT INSURANCE PREMIUMS 97 85 193 171
OTHER 206 147 421 349
------ ------ ------ ------
TOTAL NON-INTEREST EXPENSE $1,211 $ 991 $2,530 $2,071
------ ------ ------ ------
INCOME BEFORE INCOME TAXES, EXTRAORDINARY
ITEM, AND CUMULATIVE EFFECT OF CHANGES
IN ACCOUNTING PRINCIPLE $ 706 $1,005 $1,397 $1,689
PROVISION FOR INCOME TAXES 310 400 558 678
------ ------ ------ ------
NET INCOME $ 396 $ 605 $ 839 $1,011
======== ====== ===== ======
EARNINGS PER SHARE $ 0.18 0.25 $ 0.36 $ 0.41
======== ====== ===== ======
</TABLE>
See accompanying notes to consolidated financial statements.
4
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COMMUNITY FINANCIAL CORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30 JUNE 30
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
NET INCOME $ 395 $ 605 $ 839 $ 1,011
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
PROVISION FOR DEPRECIATION 54 53 108 106
PROVISION FOR LOAN LOSSES 40 24 (11) 67
ACCRETION OF DISCOUNTS ON SECURITIES (26) 5 (44) (2)
AMORTIZATION OF PREMIUMS ON SECURITIES 15 (5) 28 7
AMORTIZATION OF MRP 70 0 140 0
(INCREASE) DECREASE IN ACCRUED INTEREST RECEIVABLE (62) (20) (19) 2
(INCREASE) DECREASE IN OTHER ASSETS 49 369 (397) 127
(DECREASE) INCREASE IN ACCRUED INCOME TAXES (371) 136 (103) 457
(INCREASE) DECREASE IN DEFERRED INCOME TAXES (161) (293) (344) 280
INCREASE (DECREASE) IN ACCRUED INTEREST PAYABLE (54) (40) 16 46
INCREASE (DECREASE) IN OTHER LIABILITIES 183 483 (121) 85
FEDERAL HOME LOAN BANK STOCK DIVIDENDS RECEIVED 0 0 0 0
DIVIDENDS ON SECURITIES 0 (10) 0 (10)
LOSS (GAIN) ON SALE OF SECURITIES AND MORTGAGE-BACKED
AND RELATED SECURITIES 0 5 (1) 0
LOSS (GAIN) IN SALE OF PREMISES AND EQUIPMENT 0 0 0
------- ---------- ---------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 132 $ 1,312 $ 91 $ 2,176
------- ---------- ---------- --------
INVESTING ACTIVITIES:
PROCEEDS FROM SALES OF SECURITIES AVAILABLE FOR SALE 1,000 0 1,000 0
PROCEEDS FROM SALES OF SECURITIES HELD TO MATURITY 0 0 0 0
PROCEEDS FROM MATURITIES OF SECURITIES HELD TO MATURITY 85 0 210 0
PROCEEDS FROM MATURITIES OF SECURITIES AVAILABLE FOR SALE 0 (3) 2,000 70
PROCEEDS FROM SALES OF MORTGAGE-BACKED AND RELATED
SECURITIES 204 0 204 892
PURCHASE OF MORTGAGE-BACKED AND RELATED SECURITIES 0 (2,183) 0 (3,212)
PURCHASE OF SECURITIES AVAILABLE FOR SALE (1,000) 0 (1,000) 0
PURCHASE OF SECURITIES HELD TO MATURITY (170) (210) (85) (210)
PROCEEDS FROM MATURING TIME DEPOSITS 0 0 0 99
PURCHASE OF LOANS 0 0 0 0
DECREASE (INCREASE) IN LOAN RECEIVABLE (4,978) (1,150) (5,601) (2,530)
PRINCIPAL COLLECTED ON MORTGAGE-BACKED AND RELATED
SECURITIES 1,965 698 3,180 1,203
SFAS 115 ADJUSTMENT 60 (679) 515 (1,273)
DECREASE (INCREASE) IN FORECLOSED REAL ESTATE (19) 25 (19) 25
PURCHASE OF PREMISES AND EQUIPMENT (191) (19) (221) (38)
PROCEEDS FROM SALE OF EQUIPMENT 0 0 0 0
PURCHASE OF FEDERAL HOME LOAN BANK STOCK 0 (342) 0 (342)
PURCHASE OF FEDERAL RESERVE BANK STOCK 0 0 0 0
PROCEEDS FROM SALE OF FEDERAL HOME LOAN BANK STOCK 0 0 0 0
------- ---------- ---------- ---------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES $(3,044) $(3,863) $ 183 $ (5,316)
------- ---------- ---------- ---------
</TABLE>
5
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COMMUNITY FINANCIAL CORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30 JUNE 30
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
FINANCING ACTIVITIES:
NET INCREASE (DECREASE) IN DEPOSITS $(4,070) $(4,814) $(5,896) $(1,509)
(DECREASE) INCREASE IN ADVANCES FROM BORROWERS
FOR TAXES AND INSURANCE (2) 1,983 39 2,010
INCREASE (DECREASE) IN SHORT-TERM BORROWINGS 2,632 0 5,428 (1,050)
PROCEEDS FROM SALE OF STOCK 0 23,268 0 23,268
UNEARNED EMPLOYEE STOCK OWNERSHIP PLAN 0 0 0 0
PURCHASE OF SHARES FOR MRP 0 0 (1,403) 0
PURCHASE OF TREASURY STOCK (1,749) 0 (1,749) 0
------- ------- ------- -------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES $(3,189) $20,437 $(3,581) $22,719
------- ------- ------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (6,101) 17,886 (3,307) 19,579
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 12,671 7,132 9,877 5,439
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,570 $25,018 $ 6,570 $25,018
======= ======= ======= =======
SUPPLEMENTAL DISCLOSURES:
ADDITIONAL CASH FLOWS INFORMATION:
CASH PAID FOR:
INTEREST ON DEPOSITS, ADVANCES AND
OTHER BORROWINGS $ 1,725 $ 1,832 $ 3,351 $ 3,342
INCOME TAXES:
FEDERAL $ 290 $ 217 $ 567 $ 348
STATE $ 47 $ 32 $ 94 $ 32
SCHEDULE OF NONCASH INVESTING ACTIVITIES:
STOCK DIVIDENDS WERE DISTRIBUTED BY THE
FEDERAL HOME LOAN BANK OF CHICAGO $ 0 $ 0 $ 0 $ 0
SECURITIES, MORTGAGE-BACKED AND RELATED SECURITIES
TRANSFERRED TO AVAILABLE FOR SALE $ 0 $ 0 $ 0 $ 0
</TABLE>
6
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COMMUNITY FINANCIAL CORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL NET UNREALIZED
COMMON PAID-IN ESOP MRP RETAINED LOSS ON SECURITIES
STOCK CAPITAL STOCK STOCK EARNINGS AVAILABLE FOR SALE TOTAL
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<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 $26 $25,281 ($2,116) $0 $14,971 ($56) $38,106
NET INCOME $839 $0 $839
SALE OF COMMON STOCK $0 $0 $0
SHARES HELD FOR ESOP $212 $212
SHARES HELD FOR MRP ($1,263) ($1,263)
CHANGE IN NET UNREALIZED LOSS ON
SECURITIES AVAILABLE FOR SALE $0 ($515) ($515)
TREASURY STOCK ($1,749) ($1,749)
-------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1996 $26 $23,532 ($1,904) ($1,263) $15,810 ($571) $35,630
===========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
7
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COMMUNITY FINANCIAL CORP and SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1996
(Unaudited)
(1) STOCK CONVERSION
On June 29, 1995, Community Bank & Trust (the Bank) completed its
conversion from a Federally-chartered mutual savings bank to a Federally
chartered savings bank and then to a National Bank and was simultaneously
acquired by Community Financial Corp (the Company), an Illinois
corporation, which was formed to act as the holding company of the Bank. At
the date of the conversion, the Company completed the sale of 2,645,000
shares of common stock, $.01 par value, to its Eligible Account Holders,
Employee Stock Ownership Plan (ESOP), Supplemental Eligible Account
Holders, Other Members and a Community Offering at $10.00 per share. Net
proceeds from the above transactions, after deducting offering expenses,
underwriting fees, and amounts retained to fund the ESOP, totaled
$23,113,407.42.
The Company is primarily engaged in the business of directing,
planning and coordinating the business activities of the Bank, which
primarily consist of accepting deposits from the general public through its
branches and investing these funds in loans in the Bank's market areas and
in investment securities and mortgage-backed securities. In the future, the
holding company structure will permit the Company to expand the financial
services currently offered through the Bank, although there are no
definitive plans or arrangements for such expansion at present.
(2) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for Form 10-Q and, therefore, do
not include all information and footnotes necessary for a complete
presentation of financial position, results of operations, changes in
stockholders' equity, and cash flows in conformity with generally accepted
accounting principles. However, all adjustments (consisting only of normal
recurring accruals) which, in the opinion of management, are necessary for
a fair presentation of the unaudited consolidated financial statements have
been included in the results of operations for the three months ended and
six months ended June 30, 1996 and 1995.
Prior to its acquisition of the Bank on June 29, 1995, the Company had not
issued any stock, had no assets or liabilities, and had not engaged in any
business activities other than that of an organizational nature.
Accordingly, the unaudited consolidated financial statements included
herein as of dates or for periods ended prior to June 29, 1995, reflect the
operations of the Bank only.
(3) PRINCIPLES OF CONSOLIDATION
The accompanying unaudited consolidated financial statements include the
accounts of Community Financial Corp, Community Bank & Trust and its wholly
owned subsidiary, Olney Savings Service Corp. All significant intercompany
items have been eliminated.
(4) EARNINGS PER COMMON SHARE
The earnings per share calculations are based on the average number of
shares outstanding of 2,217,987 and 2,293,850 for the quarter end and six
months ended June 30, 1996, respectively.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1996 AND DECEMBER 31,1995.
Total assets decreased by $3.1 million, or 1.7%, from $186.5 million at December
31, 1995 to $183.4 million at June 30, 1996. Total cash and cash equivalents
(which includes federal funds sold) decreased by $3.3 million or 33.5% from $9.9
million at December 31,1995 to $6.6 million at June 30, 1996. The decreases were
due to the purchases of 105,800 shares of stock for the MRP Trust and 132,250
shares of stock which are being held as treasury stock. The Company's loan
portfolio increased by $5.6 million, or 5% from $114.5 million at December 31,
1995 to $120.1 million at June 30, 1996. The growth in loans for the six months
ended June 30,1996 was due primarily to increases in agriculture lending and
commercial business lending. Securities available for sale declined by $2.2
million or 11.6% from $19.3 million at December 31, 1995 to $17.1 million at
June 30, 1996 as a result of maturities. Mortgage-back and related securities
available for sale declined by $4.1 million or 11.5% from $35.5 million at
December 31, 1995 to $31.4 million at June 30, 1996 as a result of principal
paybacks. During the six months ended June 30, 1996, the Company's portfolio of
investment securities and mortgage-backed and related securities, classified as
available for sale pursuant to Statement of Financial Accounting Standards
("SFAS") No. 115, decreased capital by $571,000 (net of taxes) as a result of a
decrease in the market value. Total liabilities decreased $637,000 or .4% from
$148.4 million at December 31, 1995 to $147.8 million at June 30, 1996. Deposits
declined by $5.9 million, or 4.1% from $144.3 million at December 31, 1995 to
$138.4 million at June 30, 1996. Federal Home Loan Bank advances increased by
$3.5 million or 116.7% from $3.0 million at December 31, 1995 to $6.5 million at
June 30, 1996 to offset the deposit decline.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS AND SIX MONTHS ENDED
JUNE 30, 1996 AND 1995.
NET INCOME. Net income was $396,000 for the three months ended June 30, 1996, as
compared to $605,000 for the three months ended June 30, 1995. This represents a
decrease of $209,000. This decrease was primarily due to the recovery of
litigation of $249,000 and gain on the sale of an insurance agency of $187,000
(pre-tax) that was booked in the June 30, 1995 quarter end.
Net income was $839,000 for the six months ended June 30, 1996, as compared to
$1.0 million for the six months ended June 30, 1995. The decrease in net income
was primarily due to the non-recurring gains recognized during the second
quarter of 1995 on the sale of an insurance agency and the recovery in a
lawsuit.
NET INTEREST INCOME. Net interest income was $1.7 million for the three months
ended June 30, 1996 as compared to $1.4 million for the three months ended June
30, 1995. This represents an increase of $395,000, or 28.9%. This increase is
primarily the result of the deployment of the net conversion proceeds into
interest earning assets, as the average interest earning assets increased by
$9.0 million or 5.4%, from $167.1 million June 30, 1995 to $176.1 million June
30, 1996.
Net interest income was $3.5 million for the six months ended June 30, 1996, as
compared to $3.0 million for the six months ended June 30, 1995. This represents
an increase of $570,000, or 19.3%. The increase was primarily due to the net
conversion proceeds performance for the first six months of 1996.
INTEREST INCOME. Interest income was $3.4 million for the three months ended
June 30, 1996, as compared to $3.1 million for the three months ended June 30,
1995, representing an increase of $298,000, or 9.6%. The increase was due to a
$202,000 increase to the interest earned on loans and a $133,000 increase to the
interest earned on investments and interest-bearing deposits. The increase in
interest on loans is due primarily to an increase of $4.6 million in the average
balance of loans from $114.8 million for the three
9
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months ended June 30, 1995, to $119.4 million for the three months ended June
30, 1996. The Company was able to increase its loans primarily through the
increased origination of agricultural and commercial business loans. The
increase in interest income on investments and interest-bearing deposits is due
primarily to the infusion of capital from the stock conversion having a full
three months to perform.
Interest income was $6.9 million for the six months ended June 30, 1996, as
compared to $6.3 million for the six months ended June 30, 1995, representing an
increase of $579,000, or 9.2%. The increase was due primarily to an increase of
$13.7 million, or 8.4%, in the average of interest earning assets from $164.0
million for the six months ended June 30, 1995, to $177.7 million for the six
months ended June 30, 1996.
INTEREST EXPENSE. Interest expense decreased by $97,000, or 5.5%, from $1.8
million for the three months ended June 30, 1995 to $1.7 million for the three
months ended June 30, 1996. The decrease reflects in the decrease of $6.7
million, or 4.4%, in the average balance of deposit liabilities from $153.2
million for the three months ended June 30, 1995 to $146.5 million for the three
months ended June 30, 1996. The decrease is primarily due to the run off of $3.8
million of non-transaction accounts of $100,000 or more.
Interest expense for the six months ended June 30, 1996 and June 30, 1995
remained unchanged at $3.3 million for both periods. The average balance of
deposit liabilities decreased by $5.6 million, or 3.6%, from $153.2 million for
the six months ended June 30, 1995 to $147.6 million for the six months ended
June 30, 1996. In order to maintain existing deposits and to attract new
deposits, the average cost of funds increased 22 basis points, from 4.3% for the
six months ended June 30, 1995 to 4.6% for the six months ended June 30, 1996.
PROVISION FOR LOAN LOSSES. The Company established provisions for loan losses of
$40,000 and $24,000 for the three months ended June 30, 1996 and 1995,
respectively. For the first six months ended June 30, 1996 and 1995 respectively
the provision account has recovered $11,000 and been charged $67,000. The
Company's provisions for loan losses approximated charge-offs during such
periods and were made to maintain the allowance for loan losses at an adequate
level during those periods.
NONINTEREST INCOME. Noninterest income decreased by $458,000, from $654,000 for
the three months ended June 30, 1995 to $196,000 for the three months ended June
30, 1996. This decrease was primarily attributable to the recognition of
$187,000 on the gain from the sale of the insurance agency and $249,000 from the
recovery of a lawsuit.
Noninterest income decreased by $481,000, from $874,000 for the six months ended
June 30, 1995 to $393,000 for the six months ended June 30, 1996. This was due
to the non-recurring gains recognized from the sale of the insurance agency and
the recovery in a lawsuit during the six months ended June 30, 1995.
NONINTEREST EXPENSE. Noninterest expense increased by $220,000, or 22.2%, from
$1.0 million for the three months ended June 30, 1995 to $1.2 million for the
three months ended June 30, 1996. Such increase was due primarily to a $143,000,
or 27.6% increase in compensation and benefits. As a result of the stock
conversion, the ESOP and MRP benefits program accounts for $123,000 of the
increase. In addition $33,000 of expenses are associated with the Company for
the three months ended June 30, 1996 that were not in existence for the three
months ended June 30, 1995 .
Noninterest expense increased by $459,000, or 22.2%, from $2.1 million for the
six months ended June 30, 1995 to $2.5 million for the six months ended June 30,
1996. The increase was primarily due to a $341,000, or 31.7% increase in
compensation and benefits. As a result of the conversion, the ESOP and MRP
benefits program accounts for $246,000 of the increase. Other expenses account
for $72,000 of the increase which is primarily expenses associated with the
Company that reported no expenses for the six month period ended June 30, 1995.
10
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INCOME TAX EXPENSE. The Company's income tax expense was estimated at $310,000
and $400,000 for the three months ended June 30, 1996 and 1995, respectively.
For the six months ended June 30, 1996 and 1995 income taxes were estimated to
be $558,000 and $678,000 respectively.
11
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LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are deposits and proceeds from
maturing mortgage-backed and related securities and principal and interest
payments on loans and mortgage-backed and related securities. While maturities
and scheduled amortization of mortgage-backed and related securities and loans
are a predictable source of funds, deposit flows and mortgage payments are
greatly influenced by general interest rates, economic conditions, competition
and other factors.
The primary investing activity of the Company is the purchase of
investment securities. Other investing activities include originations of loans
and purchases of mortgage-backed and related securities. The primary financing
activity of the Company is accepting savings deposits and obtaining short-term
borrowings through FHLB advances.
The Company has other sources of liquidity if there is a need for
funds. The Company has a portfolio of investment securities and mortgage-backed
and related securities with an aggregate market value of $48.6 million at June
30, 1996 classified as available for sale. Another source of liquidity is the
Bank's ability to obtain advances from the FHLB of Chicago. In addition, the
Company maintains a significant portion of its investments in interest-bearing
deposits at other financial institutions that will be available when needed.
The Company anticipates that it will have sufficient funds available
to meet commitments outstanding and to meet loan demands. As of June 30, 1996,
the Bank's ratios of core capital to adjusted total assets was 19.4%, as
compared to the required level of 3.0%, respectively. The risk-based capital
ratio at that date was 34.1%, as compared to the requirement of 8.0%.
RECENT EVENT
RECAPITALIZATION OF SAIF. The deposits of the Company are currently
insured by the Savings Association Insurance Fund ("SAIF") of the Federal
Deposit Insurance Corporation ("FDIC"). Both the SAIF and the Bank Insurance
Fund ("BIF") are required by law to attain and thereafter maintain a reserve
ratio of 1.25% of insured deposits. The BIF has achieved a fully funded status
in contrast to the SAIF and, therefore, the FDIC recently substantially reduced
the average deposit insurance premium paid by BIF-insured commercial banks to a
level substantially below the average premium paid by SAIF-insured institutions.
Such action creates a substantial disparity in the deposit insurance premiums
paid by BIF and SAIF members and could place SAIF-insured savings institutions
at a significant competitive disadvantage to BIF-insured institutions.
The House of Representatives and the Senate of the United States
provided for a resolution of the recapitalization of the SAIF in the Balanced
Budget Act of 1995 (the "Reconciliation Bill") which was vetoed by the President
in December 1995 for reasons unrelated to the recapitalization of the SAIF. The
Reconciliation Bill provided that all SAIF member institutions would pay a
special assessment recently estimated to be a one-time charge of 0.85% of the
Company's total SAIF-assessable deposits as of March 31, 1995, or approximately
$1.3 million pretax. Such special assessment would be in addition to the
Company's annual deposit insurance premium. However, it is anticipated that
after the recapitalization of the SAIF, the premiums of SAIF-insured
institutions would be reduced comparable to those currently being assessed BIF-
insured commercial banks. A balance budget bill subsequently was enacted and
signed by the President in April 1996. That bill did not provide for the
recapitalization of the SAIF, and there can be no assurance whether the SAIF
will be recapitalized, whether the premium disparity between the SAIF and BIF
insured institutions will be reduced or eliminated or whether a special
assessment will be charged.
COMMON STOCK REPURCHASE. On April 2, 1996 the Company announced that
the Board of Directors had approved a program for the repurchase of up to
132,250 shares of the Company's outstanding common stock, which represents
approximately 5% of the shares issued in the conversion. Subsequently the
Company has repurchased 132,250 shares. Such shares are being held as treasury
shares.
12
<PAGE>
PART II. OTHER INFORMATION
------------------
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
On May 2, 1996, the Company held it's annual meeting of stockholders
with the sole purpose being the election of Directors whose term expired
in 1996.
The following table shows the results of the voting for the election
of Directors.
<TABLE>
<CAPTION>
FOR AGAINST
--------- -------
<S> <C> <C>
William O. Cantwell: 2,252,097 55,360
Charles M. DiCiro: 2,283,197 24,260
Allen D. Welker: 2,255,097 52,360
</TABLE>
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is filed herewith:
Exhibit 27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended
June 30, 1996.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the 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 CORP.
Date: August 2, 1996 /s/ Shirley B. Kessler
-------------------------------------
Shirley B. Kessler
President and Chief Executive Officer
(Director and Principal Executive Officer)
Date: August 2, 1996 /s/ Douglas W. Tompson
--------------------------------------
Douglas W. Tompson
(Chief Financial Officer)
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,349
<INT-BEARING-DEPOSITS> 5,221
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 48,556
<INVESTMENTS-CARRYING> 3,075
<INVESTMENTS-MARKET> 3,048
<LOANS> 121,698
<ALLOWANCE> 1,581
<TOTAL-ASSETS> 183,400
<DEPOSITS> 138,331
<SHORT-TERM> 8,428
<LIABILITIES-OTHER> 961
<LONG-TERM> 0
0
0
<COMMON> 26
<OTHER-SE> 35,604
<TOTAL-LIABILITIES-AND-EQUITY> 183,400
<INTEREST-LOAN> 5,045
<INTEREST-INVEST> 1,828
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 6,873
<INTEREST-DEPOSIT> 3,223
<INTEREST-EXPENSE> 3,350
<INTEREST-INCOME-NET> 3,523
<LOAN-LOSSES> (11)
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,530
<INCOME-PRETAX> 1,397
<INCOME-PRE-EXTRAORDINARY> 839
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 839
<EPS-PRIMARY> .36
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 316
<LOANS-PAST> 122
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,699
<ALLOWANCE-OPEN> 1,514
<CHARGE-OFFS> 189
<RECOVERIES> 267
<ALLOWANCE-CLOSE> 1,581
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
