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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, 1997
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 August 12, 1997, the Registrant had 2,360,612 shares of Common Stock
issued and outstanding.
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CONTENTS
PAGE
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PART I. FINANCIAL INFORMATION
---------------------
Consolidated Balance Sheets as of June 30, 1997
and December 31, 1996.................................................................. 3
Consolidated Statements of Income for the Three-Month and Six-Month
Periods Ended June 30, 1997 and 1996................................................... 4
Consolidated Statements of Cash Flows for the Three-Month and Six-Month
Period Ended June 30, 1997 and 1996.................................................... 5
Consolidated Statements of Stockholders' Equity for the
Six-Month Period Ended June 30, 1997................................................... 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 SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
ASSETS 1997 1996
- ------ ----------- -----------
<S> <C> <C>
CASH AND CASH EQUIVALENTS:
CASH $ 1,269 $ 1,285
INTEREST BEARING DEPOSITS 16,165 11,333
----------- -----------
TOTAL CASH AND CASH EQUIVALENTS 17,434 12,618
TIME DEPOSITS 0 0
SECURITIES AVAILABLE FOR SALE (amortized cost
of $31,901 (1997) and $14,213 (1996)) 31,743 13,990
SECURITIES HELD TO MATURITY (estimated market value
of $3,207 (1997) and $3,378 (1996) 3,236 3,362
MORTGAGE-BACK & RELATED SECURITIES AVAILABLE FOR SALE
(amortized cost of $26,176 (1997) and $28,535(1996) 25,958 28,319
LOANS RECEIVABLE, net 132,252 122,307
FORECLOSED REAL ESTATE, net 126 53
REAL ESTATE HELD FOR SALE 0 0
ACCRUED INTEREST RECEIVABLE 1,771 1,239
PREMISES AND EQUIPMENT, net 3,425 2,609
PREPAID INCOME TAXES 0 166
DEFERRED INCOME TAXES 381 409
GOODWILL 891 0
OTHER ASSETS 664 727
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TOTAL ASSETS $ 217,881 $ 185,799
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
DEPOSITS $ 155,993 $ 139,100
FEDERAL HOME LOAN BANK ADVANCES 22,000 7,500
REPURCHASE AGREEMENTS 4,104 3,121
ADVANCES FROM BORROWERS FOR TAXES AND INSURANCE 76 40
ACCRUED INTEREST PAYABLE 250 160
ACCRUED INCOME TAXES 324 0
OTHER LIABILITIES 420 1,796
----------- -----------
TOTAL LIABILITIES $ 183,167 $ 151,717
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STOCKHOLDER EQUITY:
COMMON STOCK, $.01 PAR VALUE PER SHARE:
7,000,000 SHARES AUTHORIZED; 2,365,612
AND 2,387,112 SHARES ISSUED AT JUNE 30, 1997
AND DECEMBER 31, 1996 $ 26 $ 26
ADDITIONAL PAID-IN CAPITAL 25,448 25,397
TREASURY STOCK (3,728) (3,411)
UNALLOCATED ESOP SHARES (1,688) (1,693)
SHARES HELD FOR MRP (875) (1,123)
RETAINED EARNINGS 15,755 15,149
UNREALIZED LOSS ON SECURITIES AVAILABLE FOR SALE,
NET OF RELATED TAXES (224) (263)
----------- -----------
TOTAL STOCKHOLDER EQUITY $ 34,714 $ 34,082
----------- -----------
COMMITMENTS AND CONTINGENCIES 0.00 0.00
TOTAL LIABILITIES AND STOCKHOLDER EQUITY $ 217,881 $ 185,799
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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COMMUNITY FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME:
INTEREST ON LOANS $ 2,966 $ 2,545 $ 5,866 $ 5,045
INTEREST ON MORTGAGE-BACKED AND RELATED SECURITIES 430 528 881 1,086
INTEREST ON INVESTMENTS AND INTEREST-BEARING DEPOSITS 735 345 1,209 742
-------- -------- -------- --------
TOTAL INTEREST INCOME $ 4,131 $ 3,418 $ 7,956 $ 6,873
-------- -------- -------- --------
INTEREST EXPENSE:
INTEREST ON DEPOSITS $ 1,720 $ 1,589 $ 3,376 $ 3,223
INTEREST ON OTHER BORROWED FUNDS 282 68 453 127
-------- -------- -------- --------
TOTAL INTEREST EXPENSE $ 2,002 $ 1,657 $ 3,829 $ 3,350
-------- -------- -------- --------
NET INTEREST INCOME $ 2,129 $ 1,761 $ 4,127 $ 3,523
PROVISIONS FOR LOAN LOSSES 22 40 $ 56 $ (11)
-------- -------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES $ 2,107 $ 1,721 $ 4,071 $ 3,534
-------- -------- -------- --------
NON-INTEREST INCOME:
SERVICE FEES $ 204 $ 123 $ 400 $ 246
INSURANCE AND ANNUITY COMMISSIONS 72 46 115 92
NET GAIN (LOSS) ON SALE OF SECURITIES (1) 0 (1) 0
GAIN ON SALE OF INSURANCE AGENCY 0 0 0 0
RECOVERY OF LITIGATION SETTLEMENT 0 0 0 0
OTHER 7 27 27 55
-------- -------- -------- --------
TOTAL NON-INTEREST INCOME $ 282 $ 196 $ 541 $ 393
-------- -------- -------- --------
NON-INTEREST EXPENSE:
COMPENSATION AND BENEFITS $ 815 $ 662 $ 2,262 $ 1,417
OCCUPANCY 72 53 144 105
EQUIPMENT AND FURNISHING 115 90 219 173
DATA PROCESSING 119 103 243 221
FEDERAL DEPOSIT INSURANCE PREMIUMS 23 97 45 193
OTHER 265 206 613 421
-------- -------- -------- --------
TOTAL NON-INTEREST EXPENSE $ 1,409 $ 1,211 $ 3,526 $ 2,530
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES, EXTRAORDINARY
ITEM, AND CUMULATIVE EFFECT OF CHANGES
IN ACCOUNTING PRINCIPLE $ 980 $ 706 $ 1,086 $ 1,397
PROVISION FOR INCOME TAXES 397 310 426 558
-------- -------- -------- --------
NET INCOME $ 583 $ 396 $ 660 $ 839
======== ======== ======== ========
EARNINGS PER SHARE $ 0.27 0.18 $ 0.30 $ 0.36
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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COMMUNITY FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
NET INCOME $ 583 $ 395 $ 660 $ 839
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
INCOME AT ACQUISITION OF ABI (19) 0 (54) 0
PROVISION FOR DEPRECIATION 62 54 149 108
PROVISION FOR LOAN LOSSES 23 40 56 (11)
ACCRETION OF DISCOUNTS ON SECURITIES (8) (16) (19) (44)
AMORTIZATION OF PREMIUMS ON SECURITIES 9 15 17 28
AMORTIZATION OF MRP 63 70 248 140
AMORTIZATION OF GOODWILL 5 0 5 0
GOODWILL (896) 0 (896) 0
(INCREASE) DECREASE IN ACCRUED INTEREST RECEIVABLE (534) (62) (532) (19)
(INCREASE) DECREASE IN OTHER ASSETS 100 49 63 (397)
(DECREASE) INCREASE IN ACCRUED INCOME TAXES 469 (371) 490 (103)
(INCREASE) DECREASE IN DEFERRED INCOME TAXES 134 (161) 28 (344)
INCREASE (DECREASE) IN ACCRUED INTEREST PAYABLE 16 (54) 90 16
INCREASE (DECREASE) IN OTHER LIABILITIES (662) 173 (1,376) (121)
FEDERAL HOME LOAN BANK STOCK DIVIDENDS RECEIVED 0 0 0 0
DIVIDENDS ON SECURITIES 0 0 0 0
LOSS (GAIN) ON SALE OF SECURITIES AND MORTGAGE-BACKED
AND RELATED SECURITIES 1 0 1 (1)
LOSS (GAIN) IN SALE OF PREMISES AND EQUIPMENT 0 0 0 0
-------- -------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ (654) $ 132 $ (1,070) $ 91
-------- -------- -------- --------
INVESTING ACTIVITIES:
PROCEEDS FROM SALES OF SECURITIES AVAILABLE FOR SALE 0 1,000 0 1,000
PROCEEDS FROM SALES OF SECURITIES HELD TO MATURITY 0 0 0 0
PROCEEDS FROM MATURITIES OF SECURITIES HELD TO MATURITY 0 85 212 210
PROCEEDS FROM MATURITIES OF SECURITIES AVAILABLE FOR SALE 0 0 1,803 2,000
PROCEEDS FROM SALES OF MORTGAGE-BACKED AND RELATED SECURITIES 0 204 0 204
PURCHASE OF MORTGAGE-BACKED AND RELATED SECURITIES 0 0 0 0
PURCHASE OF SECURITIES AVAILABLE FOR SALE (16,420) (1,000) (19,420) (1,000)
PURCHASE OF SECURITIES HELD TO MATURITY 0 (170) 0 (85)
PROCEEDS FROM MATURING TIME DEPOSITS 0 0 0 0
PURCHASE OF LOANS 0 0 0 0
DECREASE (INCREASE) IN LOAN RECEIVABLE (11,430) (4,978) (9,945) (5,601)
PRINCIPAL COLLECTED ON MORTGAGE-BACKED AND RELATED SECURITIES 1,342 1,965 2,362 3,180
SFAS 115 ADJUSTMENT (198) 60 (39) 515
DECREASE (INCREASE) IN FORECLOSED REAL ESTATE (2) (19) (73) (19)
PURCHASE OF PREMISES AND EQUIPMENT (802) (191) (965) (221)
PROCEEDS FROM SALE OF EQUIPMENT 5 0 5 0
PURCHASE OF FEDERAL HOME LOAN BANK STOCK (205) 0 (205) 0
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 $(27,710) $ (3,044) $(26,265) $ 183
-------- -------- -------- --------
</TABLE>
5
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COMMUNITY FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
FINANCING ACTIVITIES:
NET INCREASE (DECREASE) IN DEPOSITS $ 17,564 $ (4,070) $ 16,893 $ (5,896)
(DECREASE) INCREASE IN ADVANCES FROM BORROWERS
FOR TAXES AND INSURANCE 9 (2) 36 39
INCREASE (DECREASE) IN SHORT-TERM BORROWINGS 17,141 2,632 15,483 5,428
PROCEEDS FROM SALE OF STOCK 0 0 0 0
UNEARNED EMPLOYEE STOCK OWNERSHIP PLAN 0 0 5 0
MARKET ADJUSTMENT OF EMPLOYEE STOCK OWNERSHIP PLAN 0 0 26 0
PURCHASE OF SHARES FOR MRP 0 0 0 (1,403)
MARKET ADJUSTMENT OF MRP 0 0 25 0
PURCHASE OF TREASURY STOCK (73) (1,749) (317) (1,749)
-------- -------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES $ 34,641 $ (3,189) $ 32,151 $ (3,581)
-------- -------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 6,277 (6,101) 4,816 (3,307)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 11,157 12,671 12,618 9,877
-------- -------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 17,434 $ 6,570 $ 17,434 $ 6,570
======== ======== ======== ========
SUPPLEMENTAL DISCLOSURES:
ADDITIONAL CASH FLOWS INFORMATION:
CASH PAID FOR:
INTEREST ON DEPOSITS, ADVANCES AND
OTHER BORROWINGS $ 2,119 $ 1,725 $ 3,739 $ 3,351
INCOME TAXES:
FEDERAL $ 0 $ 290 $ 0 $ 567
STATE $ 0 $ 47 $ 0 $ 94
SCHEDULE OF NONCASH INVESTING ACTIVITIES:
STOCK DIVIDENDS 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
CHANGE IN UNREALIZED GAIN (LOSS)
ON SECURITIES AVAILABLE FOR SALE $ 198 $ (76) $ 39 $ (515)
CHANGE IN DEFERRED INCOME TAXES
ATTRIBUTED TO UNREALIZED GAIN (LOSS)
ON SECURITIES AVAILABLE FOR SALE $ (132) $ 51 $ (26) $ 343
</TABLE>
6
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COMMUNITY FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL UNALLOCATED UNALLOCATED NET UNREALIZED
COMMON PAID-IN TREASURY ESOP MRP RETAINED LOSS ON SECURITIES
STOCK CAPITAL STOCK SHARES SHARES EARNINGS AVAILABLE FOR SALE TOTAL
--------- ---------- ---------- ----------- ----------- ---------- ------------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 $26 $25,397 ($3,411) ($1,693) ($1,123) $15,149 ($263) $34,082
NET INCOME $660 $660
INCOME AT ACQUISITION OF ABI ($54) ($54)
SALE OF COMMON STOCK $0
UNALLOCATED ESOP SHARES $5 $5
SHARES HELD FOR MANAGEMENT
RECOGNITION PLAN $248 $248
CHANGE IN NET UNREALIZED LOSS ON
SECURITIES AVAILABLE FOR SALE $39 $39
TREASURY STOCK ($317) ($317)
ESOP SOP 93 - 6 ADJUSTMENT $51 $51
DIVIDENDS $0
BALANCE, JUNE 30, 1997 $26 $25,448 ($3,728) ($1,688) ($875) $15,755 ($224) $34,714
========= ========== ========== =========== =========== ========== ================== ========
</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, 1997
(Unaudited)
(1) DESCRIPTION OF THE BUSINESS
Community Financial Corp. (the Company), an Illinois corporation, is a bank
holding company for Community Bank & Trust, N.A. and American Bancshares,
Inc. the holding company for American Bank of Illinois in Highland. The
Company is primarily engaged in the business of directing, planning and
coordinating the business activities of it's subsidiaries, which primarily
consist of accepting deposits from the general public through it's
subsidiaries and investing these funds in loans in their market areas and
in investment securities and mortgage-backed securities.
(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, 1997 and 1996.
(3) PRINCIPLES OF CONSOLIDATION
The accompanying unaudited consolidated financial statements include the
accounts of Community Financial Corp, Community Bank & Trust and American
Bancshares, Inc. and its wholly owned subsidiary, American Bank of Illinois
in Highland. All significant intercompany items have been eliminated.
On May 23, 1997 American Bancshares, Inc. was purchased by the Company. The
consolidation of American Bancshares, Inc. into the Company's June 30, 1997
consolidated financial statements was handled as a purchase at the time of
acquisition, American Bancshares, Inc. balance sheet was composed of the
following:
Assets:
Cash and Cash in Banks $ 1,356
Federal Funds Sold 2,111
Securities Available for Sale 4,602
Loans Receivable, net 10,207
Premises and Equipment, net 489
Other Assets 208
Liabilities:
Deposits 17,492
Other Liabilities 228
(4) EARNINGS PER COMMON SHARE
The earnings per share calculations are based on the average number of
shares outstanding of 2,132,925 and 2,230,420 for the quarter end and six
months ended June 30, 1997, respectively.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- ------------------------------------------------------------------------
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1997 AND DECEMBER 31, 1996.
Total assets increased by $32.1 million, or 17.3%, from $185.8 million at
December 31, 1996 to $217.9 million at June 30, 1997. The increase was due
primarily to the purchase of American Bancshares, Inc. (ABI) and the resulting
consolidation of $18.5 million of assets, the recognition of $891,000 of
goodwill on the purchase and an increase (net of ABI) of $10.7 million of
investments. Total cash and cash equivalents (which includes federal funds sold)
increased by $4.8 million or 38.2% from $12.6 million at December 31, 1996 to
$17.4 million at June 30, 1997. The increase was primarily due to the purchase
of ABI and the resulting consolidation of $3.3 million. The Company's loan
portfolio increased by $9.9 million, or 8.1% from $122.3 million at December 31,
1996 to $132.3 million at June 30, 1997. The growth in loans was primarily due
to the purchase of ABI and the resulting consolidation of $10.3 million.
Securities available for sale increased by $17.8 million or 126.9% from $14.0
million at December 31, 1996 to $31.7 million at June 30, 1997 due primarily to
the purchase of ABI and the resulting consolidation of $4.4 million and the net
purchase of $13.0 million in new securities. Mortgage-back and related
securities available for sale declined by $2.4 million or 8.3% from $28.3
million at December 31, 1996 to $26.0 million at June 30, 1997 as a result of
principal paybacks. During the six months ended June 30, 1997, 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 $224,000 (net of taxes) as a
result of a decrease in the market value. Total liabilities increased by $31.5
million or 20.7% from $151.7 million at December 31, 1996 to $183.2 million at
June 30, 1997. The increase was primarily due to the purchase of ABI and the
resulting consolidation of $17.3 million of liabilities and the increase of
$14.5 million or 193.3% in Federal Home Loan Bank Advances. $12.0 million of the
increase in advances was used to purchase $12.0 million of available for sale
securities with corresponding maturities. Deposits increased by $16.9 million,
or 12.1% from $139.1 million at December 31, 1996 to $156.0 million at June 30,
1997. The increase was due to the purchase of ABI and the resulting
consolidation of $17.1 million in deposits.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS AND SIX MONTHS
ENDED JUNE 30, 1997 AND 1996.
NET INCOME. $396,000 for the three months ended June 30, 1996. This represents
an increase of $187,000, or 47.2%. The increase is partly the result of the
purchase of ABI and the resulting consolidation of $43,000 of net income and
primarily to the performance of higher yielding assets.
Net income was $583,000 for the three months ended June 30, 1997, as compared to
Net income was $660,000 for the six months ended June 30, 1997, as compared to
$839,000 for the six months ended June 30, 1996. This represent a decrease of
$179,000, or 21.3%. The decrease was due primarily to an early retirement
program in the first quarter which had a pre-tax cost of approximately $509,000.
The restated net income after removing the cost of the non-recurring early
retirement program would have been $969,000.
NET INTEREST INCOME. compared to $1.7 million for the three months ended June
30, 1996. This represents an increase of $368,000, or 20.9%. The increase is
partly the result of the purchase of ABI and the resulting consolidation of
$207,000 of net income and primarily due to yields on average interest earning
assets rising 60 basis points from 7.6% to 8.2% for the three months ended June
30, 1996 and 1997 respectively, while the cost of average liabilities rose only
10 basis point from 4.5% to 4.6% for the three months ended June 30, 1996 Net
interest income was $2.1 million for the three months ended June 30, 1997 as and
1997 respectively.
9
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Net interest income was $4.1 million for the six months ended June 30, 1997, as
compared to $3.5 million for the six months ended June 30, 1996. This represents
an increase of $604,000, or 17.1%. The increase is partly the result of the
purchase of ABI and the resulting consolidation of $393,000 of net interest
income and primarily due to yields on average interest earning assets rising 30
basis points from 7.7% to 8.0% for the six months ended June 30, 1996 and 1997
respectively.
Interest Income. to $3.4 million for the three months ended June 30, 1996,
representing an increase of $713,000, or 20.9%. The increase is partly the
result of the purchase of ABI and the resulting consolidation of $348,000 of
interest income (comprised of interest on loans of $248,000 and interest on
investments and interest-bearing deposits of $100,000) and primarily due to the
increase of $22.0 million, or 12.3% in the average interest earning assets from
$178.8 million for the three months ended June 30, 1996 to $200.9 million for
the three Interest income was $4.1 million for the three months ended June 30,
1997, as compared months ended June 30, 1997.
Interest income was $8.0 million for the six months ended June 30, 1997, as
compared to $6.9 million for the six months ended June 30, 1996, representing an
increase of $1.1 million, or 15.8%. The increase was due partly to the purchase
of ABI and the resulting consolidation of $671,000 of interest income (comprised
of interest on loans of $476,000 and interest on investments and interest-
bearing deposits of $195,000) and primarily due to the increase of $ 179.6
million, or 11.0% in the average interest earning assets from million for the
six months ended June 30, 1996 to $199.3 million for the six months ended June
30, 1997.
INTEREST EXPENSE. Increased by $345,000, or 20.8%, from $1.7 million for the
three months ended June 30, 1996 to $2.0 million for the three months ended
June 30, 1997. The increase is partly due to the purchase of ABI and the
resulting consolidation of $207,000 of interest expense (comprised of interest
on deposits) and primarily due to the increase of $214,000, or 314.7% in
interest on other borrowed funds from $68,000 for the three months ended June
30, 1996 to $282,000 for the three months ended June 30, 1997. This increase
reflects the increased balance in Federal Home Loan Bank Advances as the Company
leveraged these funds with higher yielding assets with corresponding maturities.
Interest expense increased by $479,000, or 14.3%, from $3.3 million for the six
months ended June 30, 1996 to $3.8 million for the six months ended June 30,
1997. The increase was due partly to the purchase of ABI and the resulting
consolidation of $278,000 of interest expense (comprised of interest on
deposits) and primarily due to the increase of $326,000, or 256.7% in interest
on other borrowed funds from $127,000 for the six months ended June 30, 1996 to
$453,000 for the six months ended June 30, 1997. This increase reflects the
increased balance in Federal Home Loan Bank Advances as the Company leveraged
these funds with higher yielding assets with corresponding maturities.
PROVISION FOR LOAN LOSSES. The Company established provisions for loan losses of
$22,000 and $40,000 for the three months ended June 30, 1997 and 1996,
respectively. For the first six months ended June 30, 1997 and 1996 respectively
the provision account has been charged $56,000 and recovered $11,000. 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 increased by $86,000, from $196,000 for
the three months ended June 30, 1996 to $282,000 for the three months ended June
30, 1997. The increase was partly due to the purchase of ABI and the resulting
consolidation of $43,000 of noninterest income and primarily to the increased
revenue generated by service fees.
Noninterest income increased by $148,000, from $393,000 for the six months ended
June 30, 1996 to $541,000 for the six months ended June 30, 1997. The increase
was partly due to the purchase of ABI and the resulting consolidation of $80,000
of noninterest income and primarily due to the increased revenue generated by
service fees.
10
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NONINTEREST EXPENSE. Noninterest expense increased by $198,000, or 16.4%, from
$1.2 million for the three months ended June 30, 1996 to $1.4 million for the
three months ended June 30, 1997. The increase was due primarily to the purchase
of ABI and the resulting consolidation of $187,000 of noninterest expense.
Noninterest expense increased by $996,000, or 39.4%, from $2.5 million for the
six months ended June 30, 1996 to $3.5 million for the six months ended June 30,
1997. The increase was partly due to the purchase of ABI and the resulting
consolidation of $367,000 to noninterest expense and primarily due the result of
the early retirement plan that was offered in the first quarter of 1997 and the
approximate non-recurring cost of $509,000.
INCOME TAX EXPENSE. The Company's income tax expense was estimated at $397,000
and $310,000 for the three months ended June 30, 1997 and 1996, respectively.
For the six months ended June 30, 1997 and 1996 income taxes were estimated to
be $426,000 and $558,000 respectively.
11
<PAGE>
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 $57.7 million at June 30, 1997
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, 1997, the
Company's ratios of core capital to average total assets was 16.4%, as compared
to the required level of 3.0%, respectively. The risk-based capital ratio at
that date was 28.3%, as compared to the requirement of 8.0%.
RECENT DEVELOPMENTS
On May 22, 1997, the Company announced that they had signed an agreement
pursuant to which the Company will acquire Egyptian Bancshares, Inc. for a cash
purchase price currently estimated to be $8.0 million. Egyptian Bancshares, Inc.
is the holding company for The Egyptian State Bank located in Carrier Mills,
Illinois, with total assets of $24.9 million, and Saline County State Bank
located in Stonefort and Creal Springs, with total assests of $16.4 million.
On June 25, 1997, the Company announced that they had signed an agreement
pursuant to which the Company will acquire MidAmerica Bank of St. Clair County
for a cash purchase price currently estimated to be $5.6 million. MidAmerica
Bank of St. Clair County is located in O'Fallon, Illinois, with total assets of
$16.0 million.
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
The Company's Annual Meeting of Stockholders was held on April 28, 1997.
1,907,266 shares of the Company's common stock were represented at the
Annual Meeting in person or by proxy.
Stockholders voted in favor of the election of two nominees for director.
The voting results for each nominee were as follows:
<TABLE>
<CAPTION>
Votes in Favor
Nominee of Election Votes Withheld
------- -------------- --------------
<S> <C> <C>
Shirley B. Kessler 1,887,364 19,902
Clyde R. King 1,888,414 18,852
</TABLE>
There were no broker nonvotes on the matter.
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) On May 27, 1997, the Company filed a Report on Form 8-K reporting
under Item 5 that on May 22, 1997, the Company signed an agreement to
acquire Egyptian Bancshares, Inc., the holding company for The Egyptian
State Bank and Saline County State Bank, and completed its acquisition
of American Bancshares, Inc., the holding company for American Bank of
Illinois in Highland. In addition, on July 1, 1997, the Company filed a
Report on Form 8-K reporting under Item 5 that on June 24, 1997, the
Company signed an agreement to acquire MidAmerica Bank of St. Clair
County.
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 12, 1997
/s/ Shirley B. Kessler
-----------------------------------------
Shirley B. Kessler
President and Chief Executive Officer
(Principal Executive Officer)
Date: August 12, 1997 /s/ Douglas W. Tompson
-----------------------------------------
Douglas W. Tompson
(Principal Financial Officer)
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> JUN-30-1997 JUN-30-1996
<CASH> 1,269 1,285
<INT-BEARING-DEPOSITS> 2,664 5,458
<FED-FUNDS-SOLD> 13,501 5,875
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 57,201 42,309
<INVESTMENTS-CARRYING> 58,077 42,748
<INVESTMENTS-MARKET> 3,236 3,362
<LOANS> 130,732 123,827
<ALLOWANCE> 1,520 1,520
<TOTAL-ASSETS> 217,881 185,799
<DEPOSITS> 155,993 139,100
<SHORT-TERM> 26,104 10,621
<LIABILITIES-OTHER> 1,070 1,996
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 26 26
<OTHER-SE> 34,688 34,056
<TOTAL-LIABILITIES-AND-EQUITY> 217,881 185,799
<INTEREST-LOAN> 5,866 5,045
<INTEREST-INVEST> 2,090 1,828
<INTEREST-OTHER> 0 0
<INTEREST-TOTAL> 7,956 6,873
<INTEREST-DEPOSIT> 3,376 3,223
<INTEREST-EXPENSE> 3,829 3,350
<INTEREST-INCOME-NET> 4,127 3,523
<LOAN-LOSSES> 56 (11)
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 3,526 2,530
<INCOME-PRETAX> 1,086 1,397
<INCOME-PRE-EXTRAORDINARY> 660 839
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 660 839
<EPS-PRIMARY> .30 .36
<EPS-DILUTED> .30 .36
<YIELD-ACTUAL> 3.50 3.11
<LOANS-NON> 80 316
<LOANS-PAST> 986 122
<LOANS-TROUBLED> 1,899 2,191
<LOANS-PROBLEM> 2,417 1,672
<ALLOWANCE-OPEN> 1,520 1,514
<CHARGE-OFFS> 178 189
<RECOVERIES> 123 267
<ALLOWANCE-CLOSE> 1,639 1,581
<ALLOWANCE-DOMESTIC> 852 822
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 787 759
</TABLE>
