<PAGE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
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 March 31, 1998
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.
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Illinois 37-1337630
- ------------------------------- -------------------
(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
- --------------
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 May 2, 1998, the Registrant had 2,360,612 shares
of Common Stock issued and outstanding.
<PAGE>
<PAGE>
CONTENTS PAGE
----
PART I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements
Consolidated Balance Sheets as of March
31, 1998 and December 31, 1997 3
Consolidated Statements of Income
for the Three-Month Period Ended
March 31, 1998 and 1997 4
Consolidated Statements of Cash Flows
for the Three-Month Period Ended
March 31, 1998 and 1997 5
Consolidated Statements of Stockholders'
Equity for the Three-Month Period Ended
March 31, 1998 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
-----------------
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
2<PAGE>
<PAGE>
PART 1 - FINANCIAL INFORMATION
COMMUNITY FINANCIAL CORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
ASSETS 1998 1997
- ------ ------------ -----------
<S> <C> <C>
CASH AND CASH EQUIVALENTS:
CASH $ 6,410 $ 8,607
INTEREST BEARING DEPOSITS 20,154 18,117
--------- -------
TOTAL CASH AND CASH EQUIVALENTS 26,564 26,724
SECURITIES AVAILABLE FOR SALE (amortized cost 68,020 57,283
of $68,077 (1998) and $57,282 (1997))
SECURITIES HELD TO MATURITY (estimated market value 19,878 18,318
of $20,003 (1998) and $18,403 (1997))
MORTGAGE-BACKED & RELATED SECURITIES AVAILABLE FOR
SALE 20,632 23,895
(amortized cost of $20,508 (1998) and $23,878(1997))
MORTGAGE-BACKED & RELATED SECURITIES HELD TO MATURITY
(amortized market value of $883 (1998) and $927
(1997)) 850 891
LOANS RECEIVABLE, net 157,538 162,318
FORECLOSED REAL ESTATE, net 794 126
ACCRUED INTEREST RECEIVABLE 2,464 2,675
PREMISES AND EQUIPMENT, net 5,854 5,853
PREPAID INCOME TAXES 0 0
DEFERRED INCOME TAXES 285 289
GOODWILL 5,034 5,109
CORE DEPOSIT INTANGIBLE 512 527
OTHER ASSETS 193 257
--------- ---------
TOTAL ASSETS $ 308,618 $ 304,265
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
DEPOSITS $ 217,389 $ 218,915
FEDERAL HOME LOAN BANK ADVANCES 42,000 37,000
REPURCHASE AGREEMENTS 6,017 5,323
OTHER BORROWINGS 5,600 5,600
ADVANCES FROM BORROWERS FOR TAXES AND INSURANCE 68 41
ACCRUED INTEREST PAYABLE 635 457
ACCRUED INCOME TAXES 146 46
OTHER LIABILITIES 806 1,156
--------- ---------
TOTAL LIABILITIES $ 272,661 $ 268,538
--------- ---------
STOCKHOLDER EQUITY:
COMMON STOCK, $.01 PAR VALUE PER SHARE:
7,000,000 SHARES AUTHORIZED; 2,360,612
AND 2,360,612 SHARES ISSUED AT MARCH 31, 1998
AND DECEMBER 31, 1997 $ 26 $ 26
ADDITIONAL PAID-IN CAPITAL 25,693 25,754
TREASURY STOCK (3,803) (3,803)
UNALLOCATED ESOP SHARES (1,376) (1,428)
SHARES HELD FOR MANAGEMENT RECOGNITION PLAN (688) (750)
RETAINED EARNINGS 16,070 15,917
UNREALIZED LOSS ON SECURITIES AVAILABLE FOR SALE,
NET OF RELATED TAXES 35 11
--------- ---------
TOTAL STOCKHOLDER EQUITY $ 35,957 $ 35,727
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDER EQUITY $ 308,618 $ 304,265
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3<PAGE>
<PAGE>
COMMUNITY FINANCIAL CORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION> THREE MONTHS ENDED
MARCH 31,
1998 1997
------- -------
<S> <C> <C>
INTEREST INCOME:
INTEREST ON LOANS $ 3,532 $ 2,672
INTEREST ON MORTGAGE-BACKED
AND RELATED SECURITIES 377 451
INTEREST ON INVESTMENTS
AND INTEREST-BEARING DEPOSITS 1,587 379
------- -------
TOTAL INTEREST INCOME $ 5,496 $ 3,502
------- -------
INTEREST EXPENSE:
INTEREST ON DEPOSITS $ 2,383 $ 1,574
INTEREST ON OTHER BORROWED FUNDS 749 116
------- -------
TOTAL INTEREST EXPENSE $ 3,132 $ 1,690
------- -------
NET INTEREST INCOME $ 2,364 $ 1,812
PROVISIONS FOR LOAN LOSSES 135 33
------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES $ 2,229 $ 1,779
------- -------
NON-INTEREST INCOME:
SERVICE FEES $ 323 $ 169
INSURANCE AND ANNUITY COMMISSIONS 42 43
NET GAIN (LOSS) ON SALE OF SECURITIES 0 0
OTHER 13 10
------- -------
TOTAL NON-INTEREST INCOME $ 378 $ 222
------- -------
NON-INTEREST EXPENSE:
COMPENSATION AND BENEFITS $ 1,263 $ 1,364
OCCUPANCY 120 53
EQUIPMENT AND FURNISHING 134 98
DATA PROCESSING 153 106
FEDERAL DEPOSIT INSURANCE PREMIUMS 22 22
OTHER 682 294
------- -------
TOTAL NON-INTEREST EXPENSE $ 2,374 $ 1,937
------- -------
INCOME BEFORE INCOME TAXES $ 233 $ 64
PROVISION FOR INCOME TAXES 80 22
------- -------
NET INCOME $ 153 $ 42
======= =======
BASIC EARNINGS PER SHARE $ 0.07 $ 0.02
======= =======
DILUTED EARNINGS PER SHARE $ 0.07 $ 0.02
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
4<PAGE>
<PAGE>
COMMUNITY FINANCIAL CORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION> THREE MONTHS ENDED
MARCH 31,
1998 1997
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
NET INCOME $ 153 $ 42
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
PROVISION FOR DEPRECIATION 124 87
PROVISION FOR LOAN LOSSES 135 33
ACCRETION OF DISCOUNTS ON SECURITIES (30) (11)
AMORTIZATION OF PREMIUMS ON SECURITIES 33 8
AMORTIZATION OF MRP 62 185
AMORTIZATION OF GOODWILL & CORE DEPOSIT
INTANGIBLES 90 0
DECREASE IN ACCRUED INTEREST RECEIVABLE 211 2
(INCREASE) DECREASE IN OTHER ASSETS (64) (37)
(DECREASE) INCREASE IN ACCRUED INCOME TAXES 100 21
(INCREASE) DECREASE IN DEFERRED INCOME TAXES 5 (106)
INCREASE (DECREASE) IN ACCRUED INTEREST
PAYABLE 178 74
INCREASE (DECREASE) IN OTHER LIABILITIES (351) (714)
LOSS (GAIN) ON SALE OF SECURITIES AND
MORTGAGE-BACKED AND RELATED SECURITIES 0 0
LOSS (GAIN) IN SALE OF PREMISES
AND EQUIPMENT 0 0
------- -------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ 646 $ (416)
------- -------
INVESTING ACTIVITIES:
PROCEEDS FROM SALES OF SECURITIES
AVAILABLE FOR SALE 0 0
PROCEEDS FROM SALES OF SECURITIES
HELD TO MATURITY 0 0
PROCEEDS FROM MATURITIES OF SECURITIES
HELD TO MATURITY 6,802 212
PROCEEDS FROM MATURITIES OF SECURITIES
AVAILABLE FOR SALE 13,094 1,803
PROCEEDS FROM SALES OF MORTGAGE-BACKED
AND RELATED SECURITIES 2,003 0
PURCHASE OF MORTGAGE-BACKED AND
RELATED SECURITIES 0 0
PURCHASE OF SECURITIES AVAILABLE FOR SALE (23,673) (2,841)
PURCHASE OF SECURITIES HELD TO MATURITY (8,400) 0
PROCEEDS FROM MATURING TIME DEPOSITS 0 0
PURCHASE OF LOANS 0 0
DECREASE (INCREASE) IN LOAN RECEIVABLE 4,915 1,485
PRINCIPAL COLLECTED ON MORTGAGE-BACKED
AND RELATED SECURITIES 1,323 1,020
DECREASE (INCREASE) IN FORECLOSED
REAL ESTATE (668) (71)
PURCHASE OF PREMISES AND EQUIPMENT (125) (163)
PROCEEDS FROM SALE OF EQUIPMENT 0 0
PURCHASE OF FEDERAL HOME LOAN BANK STOCK (211) 0
PURCHASE OF FEDERAL RESERVE BANK STOCK 0 0
PROCEEDS FROM SALE OF FEDERAL HOME LOAN
BANK STOCK 0 0
------- -------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES $ (4,940) $ 1,445
-------- -------
</TABLE>
5<PAGE>
<PAGE>
COMMUNITY FINANCIAL CORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION> THREE MONTHS ENDED
MARCH 31,
1998 1997
------- -------
<S> <C> <C>
FINANCING ACTIVITIES:
NET(DECREASE) IN DEPOSITS $ (1,526) $ (671)
INCREASE IN ADVANCES FROM BORROWERS
FOR TAXES AND INSURANCE 27 27
INCREASE (DECREASE) IN BORROWINGS 5,694 (1,658)
PROCEEDS FROM SALE OF STOCK 0 0
UNEARNED EMPLOYEE STOCK OWNERSHIP PLAN 0 5
PURCHASE OF SHARES FOR MRP 0 0
PURCHASE OF TREASURY STOCK 0 (244)
STOCK OPTION PLAN (61) 0
ESOP ADJUSTMENT 0 26
MRP ADJUSTMENT 0 25
-------- --------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES $ 4,134 $ (2,490)
--------- --------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS $ (160) $ (1,461)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD $ 26,724 $ 12,618
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 26,564 $ 11,157
======== ========
SUPPLEMENTAL DISCLOSURES:
ADDITIONAL CASH FLOW INFORMATION:
CASH PAID FOR:
INTEREST ON DEPOSITS, ADVANCES AND
OTHER BORROWINGS $ 3,310 $ 1,620
INCOME TAXES:
FEDERAL $ 170 $ 0
STATE $ 0 $ 0
SCHEDULE OF NONCASH INVESTING ACTIVITIES:
STOCK DIVIDENDS DISTRIBUTED BY THE
FEDERAL HOME LOAN BANK OF CHICAGO $ 0 $ 0
SECURITIES, MORTGAGE-BACKED AND RELATED
SECURITIES TRANSFERRED TO AVAILABLE
FOR SALE $ 0 $ 0
CHANGE IN UNREALIZED GAIN (LOSS)
ON SECURITIES AVAILABLE FOR SALE $ 60 $ (265)
CHANGE IN DEFERRED INCOME TAXES
ATTRIBUTED TO UNREALIZED GAIN (LOSS)
ON SECURITIES AVAILABLE FOR SALE $ 36 $ 106
</TABLE>
7<PAGE>
<PAGE>
COMMUNITY FINANCIAL CORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL UNALLOCATED
COMMON PAID-IN TREASURY ESOP
STOCK CAPITAL STOCK SHARES
--------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 $26 $25,754 ($3,803) $(1,428)
NET INCOME
SALE OF COMMON STOCK
UNALLOCATED ESOP SHARES 52
SHARES HELD FOR MANAGEMENT
RECOGNITION PLAN
TREASURY STOCK
ESOP SOP 93 - 6 ADJUSTMENT
STOCK OPTION PLANS (61)
DIVIDENDS
CHANGE IN NET UNREALIZED
LOSS ON SECURITIES
AVAILABLE FOR SALE
----------------------------------------
BALANCE, MARCH 31, 1998 $26 $25,693 ($3,803) ($1,376)
========================================
<CAPTION>
NET
UNREALIZED
LOSS ON
SECURITIES
MRP RETAINED AVAILABLE
STOCK EARNINGS FOR SALE TOTAL
--------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997 ($750) $15,917 $11 $35,727
NET INCOME $ 153 $ 153
SALE OF COMMON STOCK $ 0
UNALLOCATED ESOP SHARES $ 52
SHARES HELD FOR MANAGEMENT
RECOGNITION PLAN $ 62 $ 62
TREASURY STOCK $ 0
ESOP SOP 93 - 6 ADJUSTMENT $ 0
STOCK OPTION PLANS $ (61)
DIVIDENDS 0
CHANGE IN NET UNREALIZED
LOSS ON SECURITIES
AVAILABLE FOR SALE $24 $ 24
-------------------------------------------
BALANCE, MARCH 31, 1998 ($688) $16,070 $35 $35,957
===========================================
</TABLE>
See accompanying notes to consolidated financial statements.
8<PAGE>
<PAGE>
COMMUNITY FINANCIAL CORP and SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 1998
(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., American Bancshares, Inc., Saline County State
Bank, Egyptian State Bank, and MidAmerica Bank of St. Clair
County. Community Financial Corp. is primarily engaged in the
business of directing, planning and coordinating the business
activities of its subsidiaries, which primarily consist of
accepting deposits from the general public through its
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 March 31, 1998
and 1997.
(3) PRINCIPLES OF CONSOLIDATION
The accompanying unaudited consolidated financial statements
include the accounts of Community Financial Corp., Community
Bank & Trust, N.A., American Bancshares, Inc., and its wholly
owned subsidiary, American Bank of Illinois, Saline County State
Bank, Egyptian State Bank, and MidAmerica Bank of St. Clair
County. All significant intercompany items have been
eliminated.
9<PAGE>
<PAGE>
(4) EARNINGS PER SHARE
<TABLE>
<CAPTION>
For the three months ended March 31, 1998
Income Shares Per Share
Amount
<S> <C> <C> <C>
Basic earnings per share
Income available to
common shareholders $ 153,000 2,166,457 $ 0.07
Effect of dilutive activities
Stock options 79,331
Management recognition plan 19,445
Dilutive earnings per share
Income available to
common shareholders $ 153,000 2,265,233 $ 0.07
</TABLE>
<TABLE>
<CAPTION>
Restated for the three months ended March 31, 1997
Income Shares Per Share
Amount
<S> <C> <C> <C>
Basic earnings per share
Income available to
common shareholders $ 42,000 2,240,405 $ 0.02
Effect of dilutive activities
Stock options 26,140
Management recognition plan 8,191
Dilutive earnings per share
Income available to
common shareholders $ 42,000 2,274,736 $ 0.02
</TABLE>
10<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- ----------------------------------------------------------------
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1998 AND DECEMBER
31, 1997.
Total assets increased by $4.3 million or 1.4% from $304.3
million at December 31, 1997 to $308.6 million at March 31,
1998. Total cash and cash equivalents (which includes federal
funds sold) decreased $160,000 or .6% from $26.7 million at
December 31, 1997 to $26.6 million at March 31, 1998. The
Company's loan portfolio decreased by $4.8 million or 3.0% from
$162.3 million at December 31, 1997 to $157.5 million at March
31, 1998. The decrease was primarily caused by a soft market in
agriculture lending ($1.7 million decline) and automobile
lending ($1.9 million decline). Securities available for sale
increased by $10.7 million or 18.7% from $57.3 million at
December 31, 1997 to $68.0 million at March 31, 1998 due partly
to a $5.0 million arbitrage. The arbitrage was invested at 6.2%
with funds borrowed from the Federal Home Loan Bank at a cost of
5.3%. Securities held to maturity increased by $1.6 million or
8.7%, from $18.3 million at December 31, 1997 to $19.9 million
at March 31, 1998. Mortgage-backed and related securities
available for sale declined by $3.3 million or 13.8% from $23.9
million at December 31, 1997 to $20.6 million at March 31, 1998
as a result of maturities and principle paybacks. During the
three months ended March 31, 1998, 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,
increased capital by $35,000 (net of taxes) as a result of an
increase in the market value. Total liabilities increased by
$4.1 million or 1.5%, from $268.5 million at December 31, 1997
to $272.7 million at March 31, 1998. Deposits declined by $1.5
million or 0.6% from $218.9 million at December 31, 1997 to
$217.4 million at March 31, 1998. Federal Home Loan Bank
advances increased by $5.0 million or 13.5% from $37.0 million
at December 31, 1997 to $42.0 million at March 31, 1998 with the
funds being used in an arbitrage. Repurchase agreements
increased by $694,000 or 13.0% from $5.3 million at December 31,
1997 to $6.0 million at March 31, 1998. Other borrowings of $5.6
million, which consist of a note to UMB Bank for acquisitions
made in 1997, remained unchanged.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH
31, 1998 AND 1997.
NET INCOME. Net income was $153,000 for the three months ended
March 31, 1998, as compared to $42,000 for the three months
ended March 31, 1997. This represents an increase of $111,000,
or 264.3%. The three month period ending March 31, 1998 included
the operating results from the acquisitions made during 1997
which contributed $36,000 to the total. Included in the
operating results for the quarter ended March 31, 1998, was the
final non-recurring pre-tax charge of $147,000 to terminate the
defined benefit plan.
NET INTEREST INCOME. Net interest income increased $552,000 or
30.5%, from $1.8 million for the three months ended March 31,
1997 to $2.4 million for the three months ended March 31, 1998.
The primary reason for the increase is due to the inclusion in
the first quarter of 1998 the results of the acquisitions made
during 1997 which amounted to $601,000. The net interest margin
declined from 3.1% for the three months ended March 31, 1997 to
2.6% for the three months ended March 31, 1998.
INTEREST INCOME. Interest income increased by $2.0 million or
56.9%, from $3.5 million for the three months ended March 31,
1997 to $5.5 million for the three months ended March 31, 1998.
Of the increase $1.4 million was due to the acquisitions made in
1997. Interest income on loans increased by $860,000 or 32.2%
from $2.7 million at March 31, 1997 to $3.5 million for March
31, 1998 which includes $912,000 coming from the acquisitions.
The annualized yields
11<PAGE>
<PAGE>
based on the average loan balance increased 2 basis points from
8.58% for the three months ended March 31, 1997 to 8.78% for the
three months ended March 31, 1998. After removing the effects of
the acquisitions there was a volume decrease of $5.0 million in
the average balance of loans from $124.5 million for the three
months ended March 31, 1997 to $119.5 million for the three
months ended March 31, 1998. The decrease in interest income on
mortgage-backed and related securities of $74,000 or 16.4%, was
due to the decrease in the average balance of $4.6 million or
16.6%. Interest income on investments and interest-bearing
deposits increased $1.2 million or 318.7%, as the average
balance increased from $28.5 million for the three months ended
March 31, 1997 to $100.9 million for the three months ended
March 31, 1998. The acquisitions made in 1997 contributed
$514,000 to the increase in income and $35.1 million to the
increase in the average balance of investments and interest-
bearing deposits. The remaining increase in the average balance
of investment and interest-bearing deposits of $37.3 million, is
mainly attributable to investing $32.0 million (with an average
yield of 6.88%) of the increase in Federal Home Loan Bank
advances (with an average cost of 5.4%) in instruments with
similar maturities.
INTEREST EXPENSE. Interest expense increased $1.4 million or
82.4%, from $1.7 million for the three months ended March 31,
1997 to $3.1 million for the three months ended March 31, 1998.
Interest on deposits increased by $809,000 or 51.4%, from $1.6
million for the three months ended March 31, 1997 to $2.4
million for the three months ended March 31, 1998 of which
$703,000 was due to the acquisitions made in 1997. Average
deposits increased $79.4 million or 57.2%, from $138.8 million
for the three months ended March 31, 1997 to $218.2 million for
the three months ended March 31, 1998 with $54.1 million of the
increase due to acquisitions made in 1997. Average cost of
deposits (on an annualized basis) increased from 4.5% for the
three months ended March 31, 1997 to 4.8% for the three months
ended March 31, 1998. Interest on other borrowed funds increased
$633,000 or 545.7%, from $116,000 for the three months ended
March 31, 1997 to $749,000 for the three months ended March 31,
1998 due to the average increase in other borrowed funds of
$38.1 million or 388.8% from $9.8 million for the three months
ended March 31, 1997 to $47.9 million for the three months ended
March 31, 1998. Of the $47.9 million, $32.0 million are being
used in arbitrages, and $5.6 million is borrowed from UMB Bank
at prime which was used to fund the acquisitions made in 1997.
PROVISION FOR LOAN LOSSES. The Company established provisions
for loan losses of $135,000 and $33,000 for the three months
ended March 31, 1998 and 1997 respectively. The Company's
provisions for loan losses for the three months ended March 31,
1998, were made to maintain the allowance for loan losses at an
adequate level during that period.
NONINTEREST INCOME. Noninterest income increased by $156,000,
or 70.3%, from $222,000 for the three months ended March 31,
1997 to $378,000 for the three months ended March 31, 1998. Of
the increase, $94,000 was contributed by the acquisitions made
in 1997.
NONINTEREST EXPENSE. Noninterest expense increased by
$437,000, or 22.6%, from $1.9 million for the three months ended
March 31, 1997 to $2.4 million for the three months ended March
31, 1998. Of the increase, $699,000 was contributed by the
acquisitions made in 1997. Compensation and benefits decreased
$100,000, from $1.4 million for the three months ended March 31,
1997 to $1.3 million for the three months ended March 31, 1998.
Included in the March 31, 1998 figure is $290,000 of
compensation and benefits from the acquisitions made in 1997 and
a non-recurring expense of $147,000 (pre-tax) to close the
defined benefit plan. Include in the March 31, 1997 compensation
and benefits expense was a charge of $509,000 (pre-tax) for an
early retirement program. Restated compensation and benefits for
the three months ended March 31, 1997 would be $855,000 and for
the three months ended March 31, 1998 would be $826,000. Other
expenses increased $388,000 or 131.8%, from $294,000 for the
three months ended March 31, 1997 to $682,000 for the three
months ended March 31, 1998. Of this increase, $252,000 was
contributed by the acquisitions made in 1997.
INCOME TAX EXPENSE. The Company's income tax expense was
estimated at $80,000 and $22,000 for the three months ended
March 31, 1998 and 1997, respectively.
12<PAGE>
<PAGE>
POSSIBLE YEAR 2000 COMPUTER PROGRAM PROBLEMS
A great deal of information has been disseminated about the
global computer crash that may occur in the year 2000. Many
computer programs that can only distinguish the final two digits
of the year entered (a common programming practice in earlier
years) are expected to read entries for the year 2000 as the
year 1900 and compute payment, interest or delinquency based on
the wrong date or are expected to be unable to compute payment,
interest or delinquency. Rapid and accurate data processing is
essential to the operations of the Company. Data processing is
also essential to most other financial institutions and many
other companies.
All of the material data processing of the Company that could be
affected by this problem is provided by third party suppliers.
Management closely monitors the progress of the suppliers in
resolving this potential problem and reports the status of their
progress to the Board of Directors on a quarterly basis. The
suppliers have advised the Company that they expect to resolve
this potential problem before the year 2000 by completing all
implementation procedures by December 31, 1998 to allow for
testing to occur in 1999. However, if any of the suppliers are
unable to resolve this potential problem in time and the Company
is unable to find an alternative supplier, the Company would
likely experience significant data processing delays, mistakes
or failures. These delays, mistakes or failures could have a
significant adverse impact on the financial condition and
results of operations of the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are deposits and proceeds
from maturing mortgage-backed and related securities, 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 $88.7 million at March 31, 1998 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
demand. As of March 31, 1997, the Company's ratios of Tier I
capital to adjusted total assets was 9.9%, as compared to the
required level of 3.0%, respectively. The risk-based capital
ratio at that date was 18.7%, as compared to the requirement of
8.0%.
RECENT DEVELOPMENTS
American Bancshares, Inc. has experienced a 20% growth rate
since being acquired by the Company in May of 1997. With this
growth rate and the expectation of further growth, it has become
necessary to expand the size of the facility. The present
building is owned by the Bank but the land is leased. The Bank
has purchased the land for $350,000 and entered into a
construction contract to renovate and add-on to the existing
building at a cost not to exceed $837,000 which includes new
bank equipment. The expected completion date for the project is
late fourth quarter 1998. The amortization of the new facility
will approximate the annual cost of the land lease. The Bank
will remain open during the construction and renovation.
American Bancshares, Inc. is the sole remaining Community Bank
in Highland.
13<PAGE>
<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
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit - Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K - None
14<PAGE>
<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: May 13, 1998 /s/ Shirley B. Kessler
------------------------
Shirley B. Kessler
President and Chief Executive Officer
(Director and Principal Executive
Officer)
Date: May 13, 1998 /s/ Douglas W. Tompson
------------------------
Douglas W. Tompson
(Chief Financial Officer)
15
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