<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 September 30, 1999
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 November 2, 1999, the Registrant had 2,213,645
shares of Common Stock issued and outstanding.
<PAGE>
<PAGE>
CONTENTS
PART I. FINANCIAL INFORMATION PAGE
--------------------- ----
Item 1. Financial Statements
Consolidated Balance Sheets as of September
30, 1999 and December 31, 1998. . . . . . . . . . 3
Consolidated Statements of Income for the
Three-Month and Nine-Month Periods Ended
September 30, 1999 and 1998. . . . . . . . . . . 4
Consolidated Statements of Cash Flows for the
Three-Month and Nine-Month Periods Ended
September 30, 1999 and 1998. . . . . . . . . . . 5
Consolidated Statements of Stockholders'
Equity for the Nine-Month Period Ended
September 30, 1999 . . . . . . . . . . . . . . . 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
-----------------
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
<PAGE>
<PAGE>
PART 1 - FINANCIAL INFORMATION
COMMUNITY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1999 1998
ASSETS (UNAUDITED) (AUDITED)
- ------ ------- -----------
<S> <C> <C>
CASH AND CASH EQUIVALENTS:
CASH $ 5,566 $ 8,134
INTEREST BEARING DEPOSITS 6,377 14,768
-------- --------
TOTAL CASH AND CASH EQUIVALENTS 11,943 22,902
TIME DEPOSITS 0 0
SECURITIES AVAILABLE FOR SALE (amortized cost 45,299 52,102
of $46,458 (1999) and $52,171 (1998))
SECURITIES HELD TO MATURITY (estimated market value 19,237 16,921
of $19,121 (1999) and $17,132 (1998))
MORTGAGE-BACK & RELATED SECURITIES AVAILABLE
FOR SALE (amortized cost of $40,925 (1999) and 39,625 42,797
$42,728(1998))
MORTGAGE-BACK & RELATED SECURITIES HELD TO MATURITY 377 442
(estimated market value of $392 (1999) and
$464 (1998))
LOANS RECEIVABLE, net 179,982 157,207
FORECLOSED REAL ESTATE, net 416 436
REAL ESTATE HELD FOR SALE 0 0
ACCRUED INTEREST RECEIVABLE 2,851 3,094
PREMISES AND EQUIPMENT, net 7,881 7,635
PREPAID INCOME TAXES 0 0
DEFERRED INCOME TAXES 1,108 275
GOODWILL 4,176 4,456
CORE DEPOSIT INTANGIBLE 498 517
OTHER ASSETS 1,004 1,056
-------- --------
TOTAL ASSETS $314,397 $309,840
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
DEPOSITS $220,641 $223,933
FEDERAL HOME LOAN BANK ADVANCES 48,704 44,100
REPURCHASE AGREEMENTS 8,514 4,296
FEDERAL FUNDS PURCHASED 420 0
ADVANCES FROM BORROWERS FOR TAXES AND INSURANCE 55 32
ACCRUED INTEREST PAYABLE 689 493
ACCRUED INCOME TAXES 198 58
OTHER LIABILITIES 789 1,662
-------- --------
TOTAL LIABILITIES $280,010 $274,574
-------- --------
STOCKHOLDERS' EQUITY:
COMMON STOCK, $.01 PAR VALUE PER SHARE:
7,000,000 SHARES AUTHORIZED; 2,213,645 AND
2,242,612 SHARES ISSUED AT SEPTEMBER 30, 1999
AND DECEMBER 31, 1998 $ 26 $ 26
ADDITIONAL PAID-IN CAPITAL 25,649 25,649
TREASURY STOCK (5,565) (5,273)
UNALLOCATED ESOP SHARES (1,114) (1,164)
SHARES HELD FOR MANAGEMENT RECOGNITION PLAN (407) (569)
RETAINED EARNINGS 17,421 16,593
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (1,623) 4
-------- --------
TOTAL STOCKHOLDERS' EQUITY $ 34,387 $ 35,266
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $314,397 $309,840
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
<PAGE>
COMMUNITY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1999 1998 1999 1998
------------------ -----------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
INTEREST ON LOANS $ 3,825 $ 3,455 $ 10,737 $ 10,455
INTEREST ON MORTGAGE-BACKED
AND RELATED SECURITIES 663 369 1,995 1,018
INTEREST ON INVESTMENTS AND
INTEREST-BEARING DEPOSITS 1,054 1,742 3,461 5,137
--------- --------- --------- --------
TOTAL INTEREST INCOME $ 5,542 $ 5,566 $ 16,193 $ 16,610
--------- --------- --------- --------
INTEREST EXPENSE:
INTEREST ON DEPOSITS $ 2,306 $ 2,527 $ 7,080 $ 7,355
INTEREST ON OTHER BORROWED FUNDS 807 739 2,128 2,226
--------- --------- --------- --------
TOTAL INTEREST EXPENSE $ 3,113 $ 3,266 $ 9,208 $ 9,581
--------- --------- --------- --------
NET INTEREST INCOME $ 2,429 $ 2,300 $ 6,985 $ 7,029
PROVISIONS FOR LOAN LOSSES 211 90 477 358
--------- --------- --------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES $ 2,218 $ 2,210 $ 6,508 $ 6,671
--------- --------- --------- --------
NON-INTEREST INCOME:
SERVICE FEES $ 391 $ 346 $ 1,237 $ 1,000
INSURANCE AND ANNUITY
COMMISSIONS 81 40 241 153
NET GAIN (LOSS) ON SALE OF
SECURITIES 0 0 0 0
NET GAIN (LOSS) ON SALE OF
FIXED ASSETS 0 0 0 0
OTHER 21 57 60 94
--------- --------- --------- --------
TOTAL NON-INTEREST INCOME $ 493 $ 443 $ 1,538 $ 1,247
--------- --------- --------- --------
NON-INTEREST EXPENSE:
COMPENSATION AND BENEFITS $ 987 $ 1,006 $ 3,277 $ 3,298
OCCUPANCY 168 125 466 362
EQUIPMENT AND FURNISHING 175 145 539 402
DATA PROCESSING 138 132 460 438
FEDERAL DEPOSIT INSURANCE PREMIUMS 44 72 128 117
PROFESSIONAL FEES 41 80 244 317
SUPPLIES 73 66 223 182
GOODWILL 99 109 299 304
OTHER 397 322 1,192 1,130
--------- --------- --------- --------
TOTAL NON-INTEREST EXPENSE $ 2,122 $ 2,057 $ 6,828 $ 6,550
--------- --------- --------- --------
INCOME BEFORE INCOME TAXES $ 589 $ 596 $ 1,218 $ 1,368
PROVISION FOR INCOME TAXES 222 185 390 456
--------- --------- --------- --------
NET INCOME $ 367 $ 411 $ 828 $ 912
OTHER COMPREHENSIVE INCOME(LOSS),
NET OF INCOME TAX UNREALIZED
GAIN(LOSS) ON SECURITIES
AVAILABLE FOR SALE ARISING
IN PERIOD (365) 149 (1,627) 95
--------- --------- --------- --------
COMPREHENSIVE INCOME $ 2 $ 560 $ (799) $ 1,007
========= ========= ========= =========
WEIGHTED SHARES OUTSTANDING FOR
BASIC EARNINGS PER SHARE 2,077,591 2,166,457 2,093,515 2,166,457
BASIC EARNINGS PER SHARE $ 0.18 $ 0.19 $ 0.40 $ 0.42
========= ========= ========= =========
WEIGHTED SHARES OUTSTANDING
FOR DILUTED EARNINGS PER SHARE 2,077,591 2,202,736 2,093,515 2,251,987
DILUTED EARNINGS PER SHARE $ 0.18 $ 0.19 $ 0.40 $ 0.40
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<PAGE>
COMMUNITY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1999 1998 1999 1998
------------------- ------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
NET INCOME $ 367 $ 411 $ 828 $ 912
ADJUSTMENTS TO RECONCILE NET
INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
PROVISION FOR DEPRECIATION 174 132 521 380
PROVISION FOR LOAN LOSSES 211 90 477 358
ACCRETION OF DISCOUNTS ON
SECURITIES (7) (39) (37) (92)
AMORTIZATION OF PREMIUMS ON
SECURITIES 42 9 123 32
AMORTIZATION OF GOODWILL & CORE
DEPOSIT INTANGIBLES 100 109 299 304
AMORTIZATION OF MANAGEMENT
RECOGNITION PLAN 54 (24) 162 101
(INCREASE) DECREASE IN ACCRUED
INTEREST RECEIVABLE 79 173 243 (224)
(INCREASE) DECREASE IN OTHER
ASSETS 97 (516) 52 (209)
(DECREASE) INCREASE IN ACCRUED
INCOME TAXES 222 (19) 140 33
(INCREASE) DECREASE IN DEFERRED
INCOME TAXES (188) 71 (833) 67
INCREASE (DECREASE) IN ACCRUED
INTEREST PAYABLE 121 50 196 275
INCREASE (DECREASE) IN OTHER
LIABILITIES (15) 22 (873) (302)
LOSS (GAIN) ON SALE OF SECURITIES
AND MORTGAGE-BACKED AND RELATED
SECURITIES 0 0 0 0
LOSS (GAIN) IN SALE OF PREMISES
AND EQUIPMENT 0 0 0 0
------- ------- ------- -------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES $ 1,257 $ 469 $ 1,298 $ 1,635
------- ------- ------- -------
INVESTING ACTIVITIES:
PROCEEDS FROM SALES OF SECURITIES
AVAILABLE FOR SALE 0 0 0 0
PROCEEDS FROM SALES OF SECURITIES
HELD TO MATURITY 0 0 0 0
PROCEEDS FROM MATURITIES OF
SECURITIES HELD TO MATURITY 86 2,324 5,239 11,267
PROCEEDS FROM MATURITIES OF
SECURITIES AVAILABLE FOR SALE 7,000 24,349 25,018 45,828
PROCEEDS FROM SALES OF MORTGAGE-
BACKED AND RELATED SECURITIES
AVAILABLE FOR SALE 0 0 0 0
PROCEEDS FROM SALES OF MORTGAGE-
BACKED AND RELATED SECURITIES
HELD TO MATURITY 0 0 0 0
PURCHASE OF MORTGAGE-BACKED AND
RELATED SECURITIES AVAILABLE
FOR SALE 0 (14,923) (5,000) (14,923)
PURCHASE OF SECURITIES AVAILABLE
FOR SALE (1,000) (12,500) (18,478) (52,465)
PURCHASE OF SECURITIES HELD TO
MATURITY 0 0 (7,366) (11,975)
PROCEEDS FROM MATURING TIME
DEPOSITS 0 0 0 0
PURCHASE OF LOANS 0 0 0 0
DECREASE (INCREASE) IN LOAN
RECEIVABLE (5,106) (2,605) (22,775) 4,600
PRINCIPAL COLLECTED ON MORTGAGE-
BACKED AND RELATED SECURITIES
AVAILABLE FOR SALE 1,859 1,976 6,382 7,622
PRINCIPAL COLLECTED ON MORTGAGE-
BACKED AND RELATED SECURITIES
HELD TO MATURITY 19 0 66 0
DECREASE (INCREASE) IN FORECLOSED
REAL ESTATE 24 403 20 (175)
PURCHASE OF PREMISES AND
EQUIPMENT (123) (588) (766) (1,385)
PROCEEDS FROM SALE OF EQUIPMENT 0 0 0 0
PURCHASE OF FEDERAL HOME LOAN
BANK STOCK (328) 0 (328) (305)
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 $ 2,431 $(1,564) $(17,988) $(11,911)
------- ------- -------- --------
</TABLE>
-5-
<PAGE>
<PAGE>
COMMUNITY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1999 1998 1999 1998
------------------ -----------------
<S> <C> <C> <C> <C>
FINANCING ACTIVITIES:
NET INCREASE (DECREASE) IN
DEPOSITS $ (2,321) $ 3,041 $ (3,292) $ 8,116
(DECREASE) INCREASE IN ADVANCES
FROM BORROWERS FOR TAXES AND
INSURANCE (60) (33) 23 (1)
INCREASE (DECREASE) IN BORROWINGS (2,917) (5,600) 2,924 500
INCREASE IN REPURCHASE AGREEMENTS 1,983 2,896 6,318 2,650
PROCEEDS FROM SALE OF STOCK 0 0 0 0
UNEARNED EMPLOYEE STOCK
OWNERSHIP PLAN 0 0 50 52
MARKET ADJUSTMENT OF EMPLOYEE STOCK
OWNERSHIP PLAN 0 0 0 0
PURCHASE OF SHARES FOR MRP 0 (106) 0 (106)
MARKET ADJUSTMENT OF MRP 0 5 0 5
STOCK OPTION PLAN 0 35 0 (25)
PURCHASE OF TREASURY STOCK (98) 0 (292) 0
-------- -------- -------- --------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES $ (3,413) $ 238 $ 5,731 $ 11,191
-------- -------- -------- --------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 275 (857) (10,959) 915
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 11,668 28,496 22,902 26,724
-------- -------- -------- --------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 11,943 $ 27,639 $ 11,943 $ 27,639
======== ======== ======== ========
SUPPLEMENTAL DISCLOSURES:
ADDITIONAL CASH FLOWS INFORMATION:
CASH PAID FOR:
INTEREST ON DEPOSITS, ADVANCES
AND OTHER BORROWINGS $ 3,249 $ 2,268 $ 9,419 $ 8,808
INCOME TAXES:
FEDERAL $ 0 $ 161 $ 250 $ 381
STATE $ 0 $ 20 $ 0 $ 40
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 $ (567) $ 208 $ (2,459) $ 133
CHANGE IN DEFERRED INCOME TAXES
ATTRIBUTED TO UNREALIZED GAIN
(LOSS) ON SECURITIES AVAILABLE
FOR SALE $ 195 $ (59) $ 832 $ (38)
</TABLE>
-6-
<PAGE>
COMMUNITY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL UNALLOCATED OTHER COMPRE-
COMMON PAID-IN TREASURY ESOP MRP RETAINED COMPREHENSIVE HENSIVE
STOCK CAPITAL STOCK SHARES STOCK EARNINGS INCOME TOTAL INCOME
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE
DECEMBER 31, 1998 $26 $25,649 ($5,273) ($1,164) ($ 569) $16,593 $ 4 $35,266
COMPREHENSIVE INCOME
NET INCOME $828 $828 $ 828
-------
OTHER COMPREHENSIVE INCOME
UNREALIZED GAINS (LOSS)
ON SECURITIES $(2,459)
RELATED TAX EFFECTS 832
-------
OTHER COMPREHENSIVE INCOME $(1,627) $(1,627) $(1,627)
-------
COMPREHENSIVE INCOME $ (799)
SALE OF =======
COMMON STOCK $0
UNALLOCATED
ESOP SHARES $ 50 $ 50
SHARES HELD FOR
FOR MANAGEMENT
RECOGNITION PLAN $162 $162
TREASURY STOCK $(292) $(292)
ESOP SOP 93-6
ADJUSTMENT $0
STOCK OPTION PLAN $0
DIVIDENDS $0
-----------------------------------------------------------------------------
BALANCE
September 30, 1999 $26 $25,649 ($5,565) ($1,114) ($407) $17,421 $(1,623) $34,387
=============================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
-7-
<PAGE>
<PAGE>
COMMUNITY FINANCIAL CORP. and SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1999
(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 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 nine months ended September 30, 1999 and 1998.
(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.
(4) EARNINGS PER SHARE
<TABLE>
<CAPTION>
Income Shares Per Share
Amount
----------------------------------------
For the three months ended September 30, 1999
---------------------------------------------
<S> <C> <C> <C>
Basic earnings per share:
Income available to
Common Shareholders $ 367,000 2,077,591 $ 0.18
Effect of dilutive activities:
Stock options 0
Management recognition plan 0
Dilutive earnings per share:
Income available to
Common Shareholders $ 367,000 2,077,591 $ 0.18
<CAPTION>
For the nine months ended September 30, 1999
--------------------------------------------
Basic earnings per share:
Income available to
Common Shareholder $ 828,000 2,093,515 $ 0.40
Effect of dilutive activities:
Stock options 0
Management recognition plan 0
Dilutive earnings per share:
Income available to
Common Shareholders $ 828,000 2,093,515 $ 0.40
</TABLE>
-8-
<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION
AND RESULTS OF OPERATIONS
- ----------------------------------------------------------------
FORWARD-LOOKING STATEMENTS
When used in this Form 10-Q, the words or phrases "will likely
result", "are expected to", "will continue", "is anticipated",
"estimate", "project" or similar expressions are intended to
identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties
including changes in economic conditions in our market area,
changes in policies by regulatory agencies, fluctuations in
interest rates, demand for loans in our market area, and
competition that could cause actual results to differ materially
from historical earnings and those presently anticipated or
projected. We wish to caution you not to place undue reliance
on any such forward-looking statements, which speak only as of
the date made. We wish to advise you that the factors listed
above could affect our financial performance and could cause our
actual results for future periods to differ materially from any
opinions or statements expressed with respect to future periods
in any current statements.
We do not undertake, and specifically disclaim any obligation,
to publicly release the result of any revisions which may be
made to any forward-looking statements to reflect events or
circumstances after the date of such statements or to reflect
the occurrence of anticipated or unanticipated events.
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1999 AND
DECEMBER 31, 1998.
Total assets increased by $4.6 million, or 1.5%, from $309.8
million at December 31, 1998 to $314.4 million at September 30,
1999. Total cash and cash equivalents (which includes federal
funds sold) decreased by $11.0 million or 48.0% from $22.9
million at December 31, 1998 to $11.9 million at September 30,
1999. The decrease was primarily used to fund the increase in
the loan portfolio. Securities available for sale decreased $6.8
million or 13.1%, from $52.1 million at December 31, 1998 to
$45.3 million at September 30, 1999.The decrease was the result
of securities being called and the proceeds being used to fund
loan growth. The Company's loan portfolio increased by $22.8
million, or 14.5% from $157.2 million at December 31, 1998 to
$180.0 million at September 30, 1999. The increase was primarily
due to increases in the automobile and commercial portfolios.
The automobile portfolio increased $10.3 million, or 42.6%, from
$24.2 million at December 31, 1998 to $34.5 million at September
30, 1999 as a result of planned expansion in the portfolio. The
commercial portfolio increased $8.7 million, or 16.0%, from
$54.3 million at December 31, 1998 to $63.0 million at September
30, 1999 as a result of planned expansion in the portfolio.
During the nine months ended September 30, 1999, 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 $1.6 million (net of taxes) as a result of
a decrease in the market value. Total liabilities increased by
$5.4 million or 2.0% from $274.6 million at December 31, 1998 to
$280.0 million at September 30, 1999. The increase was primarily
due to an increase of $4.6 million or 10.4%, from $44.1 million
at December 31, 1998 to $48.7 million at September 30, 1999 in
Federal Home Loan Bank advances and an increase of $4.2 million
or 97.7% from $4.3 million at December 31, 1998 to $8.5 million
at September 30, 1999 in repurchase agreements. The increases
were used to fund the increased loan demand.
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS AND NINE
MONTHS ENDED SEPTEMBER 30, 1999 AND 1998.
NET INCOME. Net income decreased by $44,000 or 10.7%, from
$411,000 for the three months ended September 30, 1998, to
$367,000 for the three months ended September 30, 1999. The
decrease is primarily due to an increase in provisions for loan
losses of $121,000 or 134.4%, from $90,000 for the three months
ended September 30, 1998 to $211,000 for the three months ended
September 30, 1999. The increase in the provision for loan
losses was the result of recognizing the risk in the growth of
the loan portfolio during the three months ended September 30,
1999 as the average loan volume increased $22.4 million, or
14.1%, from $158.9 million for the three months ended September
30, 1998 to $181.3 million for the three months ended September
30, 1999.
-9-
<PAGE>
<PAGE>
Net income decreased by $84,000 or 9.2%, from $912,000 for the
nine months ended September 30, 1998, to $828,000 for the nine
months ended September 30, 1999. Net interest income decreased
by $44,000, or 0.6%, from $7.0 million for the nine months ended
September 30, 1998 to $7.0 million for the nine months ended
September 30, 1999. Non-interest income increased $291,000, or
23.3%, which was primarily the result of fees associated with
the increased loan growth. Non-interest expense increased
$278,000, or 4.2%, which was primarily due to increased
depreciation expense as a result of the computer system upgrade
that was completed in the fourth quarter of 1998. Provision for
income taxes decreased $66,000, or 14.5%, due to a decrease of
$150,000 of taxable income.
NET INTEREST INCOME. Net interest income increased $129,000,
or 5.6%, from $2.3 million for the three months ended September
30, 1998, to $2.4 million for the three months ended September
30, 1999. The increase was due to an annualized increase of
0.26% in the spread on the yield of interest earning assets
minus the cost of interest bearing liabilities, from 2.53% for
the three months ended September 30, 1998 to 2.79% for the three
months ended September 30, 1999.
Net interest income remained unchanged at $7.0 million for the
nine months ended September 30, 1998 and 1999 respectively.
INTEREST INCOME. Interest income decreased by $24,000, or
0.4%, from $5.6 million for the three months ended September 30,
1998 to $5.5 million for the three months ended September 30,
1999. Interest income on loans increased $370,000 or 10.7%, from
$3.5 million for the three months ended September 30, 1998 to
$3.8 million for the three months ended September 30, 1999. The
increase is primarily the result of rapid volume change. The
average loan volume increased $22.4 million, or 14.1%, from
$158.9 million for the three months ended September 30, 1998 to
$181.3 million for the three months ended September 30, 1999.
The annualized yield decreased 25 basis points, from 8.70% to
8.45% for the three months ended September 30, 1998 and 1999
respectively. The reduction in rate is a reflection of the
competition in the company's lending area. The average volume
for mortgage-backed and related securities, investments and
interest-bearing deposits decreased $13.3 million, or 10.5%,
from $126.2 million for the three months ended September 30,
1998 to $112.9 for the three months ended September 30, 1999
while the annualized yield decreased 61 basis points from 6.7%
to 6.1% for the three months ended September 30, 1998 and 1999
respectively. The decrease in the investment portfolio was
reinvested into the loan portfolio which has a higher yield than
the investment portfolio.
Interest income decreased by $417,000, or 2.5%, from $16.6
million for the nine months ended September 30, 1998 to $16.2
million for the nine months ended September 30, 1999. The
decrease is primarily the result of rapid volume changes and
decreasing yields. The average loan volume increased by $10.8
million, or 6.8%, from $158.2 million for the nine months ended
September 30, 1998 to $169.0 million for the nine months ended
September 30, 1999 while the annualized yield decreased 34
basis points from 8.8% to 8.5% for the nine months ended
September 30, 1998 and 1999 respectively. The average volume for
mortgage-backed and related securities, investments and
interest-bearing deposits decreased $3.2 million, or 2.6%, from
$120.8 million for the nine months ended September 30, 1998 to
$117.6 million for the nine months ended September 30, 1999 with
the annualized yields decreasing 60 basis points, from 6.8% to
6.2% for the nine months ended September 30, 1998 and 1999
respectively.
INTEREST EXPENSE. Interest expense decreased by $153,000 or
4.7%, from $3.3 million for the three months ended September 30,
1998 to $3.1 million for the three months ended September 30,
1999. The decrease is primarily the result of decreasing rates
on the cost of funds. The average volume of interest bearing
deposits decreased $2.6 million or 1.2%, from $208.6 million for
the three months ended September 30, 1998 to $206.0 million for
the three months ended September 30, 1999. The annualized rate
decreased 37 basis points, from 4.85% to 4.48% for the three
months ended September 30, 1998 and 1999 respectively. The
average volume on borrowed funds increased $4.2 million, or
8.0%, from $52.4 million for the three months ended September
30, 1998 to $56.6 million for the three months ended September
30, 1999. The annualized rate on borrowed funds increased 10
basis points, from 5.6% to 5.7% for the three months ended
September 30, 1998 and 1999 respectively.
Interest expense decreased by $373,000 or 3.9%, from $9.6
million for the nine months ended September 30, 1998 to $9.2
million for the nine months ended September 30, 1999. The
decrease is primarily the result of decreasing rates on the cost
of funds. The average volume of interest bearing deposits
increased $7.8 million or 3.8%, from $206.6 million for the nine
months ended September 30, 1998 to $214.4 million for the nine
months ended September 30, 1999. The annualized rate decreased
35 basis points, from 4.75% to 4.40% for the nine months ended
September 30, 1998 and 1999 respectively. The average volume on
borrowed funds increased $0.8 million, or 1.6%, from $49.6
million for the nine months ended September 30, 1998 to
$50.4 million for the nine months ended September 30, 1999. The
annualized rate on borrowed funds decreased 36 basis points,
from 5.99% to 5.63% for the nine months ended September 30, 1998
and 1999 respectively.
-10-
<PAGE>
<PAGE>
PROVISION FOR LOAN LOSSES. The Company established provisions
for loan losses of $211,000 and $90,000 for the three months
ended September 30, 1999 and 1998, respectively. For the first
nine months ended September 30, 1999 and 1998, respectively, the
provision account has been charged $477,000 and $358,000. The
increase in the provision for loan losses was the result of
recognizing the risk in the growth of the loan portfolio during
the three months ended September 30, 1999 as the average loan
volume increased $22.4 million, or 14.1%, from $158.9 million
for the three months ended September 30, 1998 to $181.3 million
for the three months ended September 30, 1999.
NONINTEREST INCOME. Noninterest income increased by $50,000,
from $443,000 for the three months ended September 30, 1998 to
$493,000 for the three months ended September 30, 1999. Of the
increase, $45,000 was due to increased service fees which is a
result of growth in the loan portfolio.
Noninterest income increased by $291,000, from $1.2 million for
the nine months ended September 30, 1998 to $1.5 million for the
nine months ended September 30, 1999. Of the increase, $237,000
was due to increased service fees which is a result of growth in
the loan portfolio.
NONINTEREST EXPENSE. Noninterest expense increased by $65,000,
or 3.2%, from $2.1 million for the three months ended September
30, 1998 to $2.1 million for the three months ended September
30, 1999. Equipment and furnishing expense increased $30,000 due
to the additional depreciation on the computer system upgrade
completed in the fourth quarter of 1998.
Noninterest expense increased by $278,000, or 4.2%, from $6.6
million for the nine months ended September 30, 1998 to $6.8
million for the nine months ended September 30, 1999. Of the
increase, $104,000 was due to increased occupancy cost from
$362,000 to $466,000 for the nine months ended September 30,
1998 and 1999 respectively. In addition, equipment and
furnishing expense increased $137,000, from $402,000 to $539,000
for the nine months ended September 30, 1998 and 1999,
respectively, primarily as the result of increased depreciation
on the computer system upgrade completed in the fourth quarter
of 1998.
INCOME TAX EXPENSE. The Company's income tax expense was
estimated at $222,000 and $185,000, which is an effective rate
of 37.7% and 31.0%, respectively, for the three months ended
September 30, 1999 and 1998, respectively. For the nine months
ended September 30, 1999 and 1998, which is an effective rate of
32.0% and 33.3%, respectively, income taxes were estimated to be
$390,000 and $456,000, respectively.
YEAR 2000 READINESS DISCLOSURE
The following information constitutes "Year 2000 Readiness
Disclosure" under the Year 2000 Information and Readiness
Disclosure Act.
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.
The Company has conducted a comprehensive review of its computer
system to identify applications that could be affected by the
"Year 2000" issue, and has developed an implementation plan to
address the issue. 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
monthly basis. During the fourth quarter of 1998, the Company
conducted testing of its mission critical banking applications
through the third party data processing suppliers. The results
of the testing were favorable. The Company's contingency plan,
which addresses how it will operate should a natural disaster
affect any of the Company's operating segments or mission
critical data processing suppliers, was tested during the first
quarter of 1999 with the results being favorable. The Company
has developed a business
-11-
<PAGE>
<PAGE>
resumption plan, which addresses how it will resume operations
should an uncontrollable situation, such as power failure or
loss of telecommunication, occur due to a "Year 2000" issue.
The plan was tested during the third quarter of 1999 with the
results being favorable. The Company has developed a customer
awareness plan that is designed to promote and educate its
customers and the general public on the issues of how the
Company and the entire banking industry is preparing for the
"Year 2000". In the fourth quarter of 1998, the Company
completed a risk assessment of its commercial and agricultural
borrowers, with indebtedness to the company of $250,000 for
Community Bank & Trust and $100,000 or more for all other
affiliates, concerning their compliance with the "Year 2000"
issue. The Company has projected that the expenses of
these plans should not exceed $175,781. The regulatory bodies,
which regulate the Company, have established detailed timeframes
for compliance with the Federal Financial Institutions
Examination Council (FFIEC) specified time tables for "Year
2000" preparedness plans and the Company has achieved those
timeframes.
The Company believes that the potential effects on our internal
operations from Year 2000 issues can and will be addressed prior
to the Year 2000. However, as unforeseen circumstances arise,
the Year 2000 issue could disrupt our normal business
operations. The most reasonably likely worst case Year 2000
scenarios foreseeable at this time would include our not being
able to systematically process, in some combination, various
types of customer transactions. This could affect our ability
to accept deposits or process withdrawals, originate new loans
or accept loan payments in the automated manner we currently
utilize. Depending upon how long this scenario lasted, this
could have a material adverse effect on our operations. Our
Contingency Plan addresses alternative methods to enable us to
continue to offer basic services to our customers. The costs of
our Year 2000 project and our benchmark dates are based on our
best estimates, which are based on a number of assumptions
including future events. We cannot guarantee that these
estimates will be achieved at the cost disclosed or within the
time frames indicated.
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
origination of loan 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 an unpledged portfolio of investment
securities and mortgage-backed and related securities with an
aggregate market value of $21.5 million at September 30, 1999
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.
<PAGE>
The Company anticipates that it will have sufficient funds
available to meet commitments outstanding and to meet loan
demands. As of September 30, 1999, the Company's ratios of Tier
1 capital to average total assets was 10.0%, as compared to the
required level of 4.0%, respectively. The risk-based capital
ratio at that date was 19.0%, as compared to the requirement of
8.0%.
-12-
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
-----------------
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
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
The following exhibit is filed herewith:
(a) Exhibit 27. Financial Data Schedule
Reports on Form 8-K: None
-13-
<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: November 12, 1999 /s/ Wayne H. Benson
----------------------------
Wayne H. Benson
(Chief Executive Officer)
Date: November 12, 1999 /s/ Douglas W. Tompson
----------------------------
Douglas W. Tompson
(Principal Financial Officer)
-14-
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 5,566
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