<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, 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 May 2, 1999, the Registrant had 2,242,612 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, 1999 and December 31, 1998. . . . . 3
Consolidated Statements of Income for
the Three-Month Period Ended
March 31, 1999 and 1998 . . . . . . . . . . . 4
Consolidated Statements of Cash Flows
for the Three-Month Period Ended
March 31, 1999 and 1998 . . . . . . . . . . . 5
Consolidated Statements of Stockholders'
Equity for the Three-Month Period Ended
March 31, 1999 . . . . . . . . . . . . . . . 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
<PAGE>
<PAGE>
PART 1 - FINANCIAL INFORMATION
COMMUNITY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31
1999 1998
ASSETS (UNAUDITED) (AUDITED)
- ------ ------------ -----------
<S> <C> <C>
CASH AND CASH EQUIVALENTS:
CASH $ 6,507 $ 8,134
INTEREST BEARING DEPOSITS 12,166 14,768
--------- ---------
TOTAL CASH AND CASH EQUIVALENTS 18,673 22,902
SECURITIES AVAILABLE FOR SALE (amortized cost 49,458 52,102
of $49,711 (1999) and $52,168 (1998))
SECURITIES HELD TO MATURITY (estimated market value 18,124 16,921
of $17,956 (1999) and $17,133 (1998))
MORTGAGE-BACKED & RELATED SECURITIES AVAILABLE FOR SALE 43,058 42,797
(amortized cost of $43,233 (1999) and $42,727 (1998))
MORTGAGE-BACKED & RELATED SECURITIES HELD TO MATURITY 428 442
(estimated market value of $452 (1999) and $463 (1998))
LOANS RECEIVABLE, net 163,217 157,207
FORECLOSED REAL ESTATE, net 350 436
ACCRUED INTEREST RECEIVABLE 3,349 3,094
PREMISES AND EQUIPMENT, net 7,924 7,635
PREPAID INCOME TAXES 0 0
DEFERRED INCOME TAXES 418 275
GOODWILL 4,375 4,456
CORE DEPOSIT INTANGIBLE 498 517
OTHER ASSETS 720 1,056
--------- ---------
TOTAL ASSETS $ 310,592 $ 309,840
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
- ------------------------------------
DEPOSITS $ 26,213 $ 223,933
FEDERAL HOME LOAN BANK ADVANCES 44,100 44,100
REPURCHASE AGREEMENTS 3,462 4,296
OTHER BORROWINGS 0 0
ADVANCES FROM BORROWERS FOR TAXES AND INSURANCE 57 32
ACCRUED INTEREST PAYABLE 584 493
ACCRUED INCOME TAXES 139 58
OTHER LIABILITIES 753 1,662
--------- ---------
TOTAL LIABILITIES $ 275,308 $ 274,574
--------- ---------
STOCKHOLDER EQUITY:
COMMON STOCK, $.01 PAR VALUE PER SHARE:
7,000,000 SHARES AUTHORIZED; 2,242,612
AND 2,242,612 SHARES ISSUED AT MARCH 31, 1999
AND DECEMBER 31, 1998 $ 26 $ 26
ADDITIONAL PAID-IN CAPITAL 25,649 25,649
TREASURY STOCK (5,273) (5,273)
UNALLOCATED ESOP SHARES (1,114) (1,164)
SHARES HELD FOR MANAGEMENT RECOGNITION PLAN (515) (569)
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (282) 4
RETAINED EARNINGS 16,793 16,593
--------- ---------
TOTAL STOCKHOLDER EQUITY $ 35,284 $ 35,266
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDER EQUITY $ 310,592 $ 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
MARCH 31
1999 1998
------- -------
<S> <C> <C>
INTEREST INCOME:
INTEREST ON LOANS $ 3,308 $ 3,532
INTEREST ON MORTGAGE-BACKED AND RELATED SECURITIES 671 377
INTEREST ON SECURITIES AND INTEREST-BEARING DEPOSITS 1,240 1,587
-------- --------
TOTAL INTEREST INCOME $ 5,219 $ 5,496
-------- --------
INTEREST EXPENSE:
INTEREST ON DEPOSITS $ 2,402 $ 2,383
INTEREST ON OTHER BORROWED FUNDS 642 749
-------- --------
TOTAL INTEREST EXPENSE $ 3,044 $ 3,132
-------- --------
NET INTEREST INCOME $ 2,175 $ 2,364
PROVISIONS FOR LOAN LOSSES 78 135
-------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES $ 2,097 $ 2,229
-------- --------
NON-INTEREST INCOME:
SERVICE FEES $ 372 $ 323
INSURANCE AND ANNUITY COMMISSIONS 69 42
NET GAIN (LOSS) ON SALE OF SECURITIES 0 0
OTHER 24 13
-------- --------
TOTAL NON-INTEREST INCOME $ 465 $ 378
-------- --------
NON-INTEREST EXPENSE:
COMPENSATION AND BENEFITS $ 1,120 $ 1,263
OCCUPANCY 143 120
EQUIPMENT AND FURNISHING 172 134
DATA PROCESSING 168 153
FEDERAL DEPOSIT INSURANCE PREMIUMS 42 22
PROFESSIONAL FEES 74 124
SUPPLIES 78 53
GOODWILL 100 90
OTHER 384 415
-------- --------
TOTAL NON-INTEREST EXPENSE $ 2,281 $ 2,374
-------- --------
INCOME BEFORE INCOME TAXES $ 281 $ 233
PROVISION FOR INCOME TAXES 81 80
-------- --------
NET INCOME $ 200 $ 153
======== ========
BASIC EARNINGS PER SHARE $ 0.10 $ 0.07
======== ========
DILUTED EARNINGS PER SHARE $ 0.10 $ 0.07
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4 <PAGE>
<PAGE>
COMMUNITY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1999 1998
------- -------
<S> <C> <C>
OPERATING ACTIVITIES:
NET INCOME $ 200 $ 153
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
PROVISION FOR DEPRECIATION 180 124
PROVISION FOR LOAN LOSSES 78 135
ACCRETION OF DISCOUNTS ON SECURITIES (149) (30)
AMORTIZATION OF PREMIUMS ON SECURITIES 43 33
AMORTIZATION OF MRP 54 62
AMORTIZATION OF INTANGIBLES 100 90
(INCREASE) DECREASE IN ACCRUED INTEREST RECEIVABLE (255) 211
(INCREASE) DECREASE IN OTHER ASSETS 336 (64)
(DECREASE) INCREASE IN ACCRUED INCOME TAXES 81 100
(INCREASE) DECREASE IN DEFERRED INCOME TAXES (143) 5
INCREASE (DECREASE) IN ACCRUED INTEREST PAYABLE 91 178
INCREASE (DECREASE) IN OTHER LIABILITIES (909) (351)
LOSS (GAIN) ON SALE OF SECURITIES AND MORTGAGE-BACKED
AND RELATED SECURITIES 0 0
LOSS (GAIN) ON SALE OF PREMISES AND EQUIPMENT 0 0
-------- -------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ (293) $ 646
-------- -------
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 3,345 6,802
PROCEEDS FROM MATURITIES OF SECURITIES AVAILABLE FOR
SALE 14,680 13,094
PROCEEDS FROM SALES OF MORTGAGE-BACKED AND RELATED
SECURITIES 0 2,003
PURCHASE OF MORTGAGE-BACKED AND RELATED SECURITIES (3,000) 0
PURCHASE OF SECURITIES AVAILABLE FOR SALE (12,000) (23,673)
PURCHASE OF SECURITIES HELD TO MATURITY (4,550) (8,400)
PROCEEDS FROM MATURING TIME DEPOSITS 0 0
PURCHASE OF LOANS 0 0
DECREASE (INCREASE) IN LOAN RECEIVABLE (6,010) 4,915
PRINCIPAL COLLECTED ON MORTGAGE-BACKED AND RELATED
SECURITIES 2,461 1,323
DECREASE (INCREASE) IN FORECLOSED REAL ESTATE 86 (668)
PURCHASE OF PREMISES AND EQUIPMENT (469) (125)
PROCEEDS FROM SALE OF EQUIPMENT 0 0
PURCHASE OF FEDERAL HOME LOAN BANK STOCK 0 (211)
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 $ (5,457)$ (4,940)
-------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
5<PAGE>
<PAGE>
COMMUNITY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1999 1998
------- -------
<S> <C> <C>
FINANCING ACTIVITIES:
NET (DECREASE) IN DEPOSITS $ 2,280 $ (1,526)
INCREASE IN ADVANCES FROM BORROWERS
FOR TAXES AND INSURANCE 25 27
INCREASE (DECREASE) IN BORROWINGS (834) 5,694
PROCEEDS FROM SALE OF STOCK 0 0
UNEARNED EMPLOYEE STOCK OWNERSHIP PLAN 50 0
PURCHASE OF SHARES FOR MRP 0 0
PURCHASE OF TREASURY STOCK 0 0
STOCK OPTION PLAN 0 (61)
ESOP ADJUSTMENT 0 0
MRP ADJUSTMENT 0 0
------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES $ 1,521 $ 4,134
------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $(4,229) $ (160)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD $22,902 $ 26,724
------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $18,673 $ 26,564
======= ========
SUPPLEMENTAL DISCLOSURES:
ADDITIONAL CASH FLOW INFORMATION:
CASH PAID FOR:
INTEREST ON DEPOSITS, ADVANCES AND
OTHER BORROWINGS $ 2,866 $ 3,310
INCOME TAXES:
FEDERAL $ 0 $ 170
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 $ (428)$ 60
CHANGE IN DEFERRED INCOME TAXES ATTRIBUTED TO
UNREALIZED GAIN (LOSS) ON SECURITIES AVAILABLE
FOR SALE $ (142)$ 36
</TABLE>
6<PAGE>
<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 $200 $200 $ 200
------
OTHER COMPREHENSIVE INCOME
UNREALIZED GAINS (LOSS)
ON SECURITIES $(421)
RELATED TAX EFFECTS 135
------
OTHER COMPREHENSIVE INCOME $(286) $(286) $(286)
------
COMPREHENSIVE INCOME $ (86)
======
SALE OF COMMON STOCK $0
UNALLOCATED ESOP SHARES $50 $50
SHARES HELD FOR
FOR MANAGEMENT
RECOGNITION PLAN $ 54 $54
TREASURY STOCK $0
ESOP SOP 93-6
ADJUSTMENT $0
STOCK OPTION PLAN $0
DIVIDENDS $0
-----------------------------------------------------------------------------
BALANCE
MARCH 31, 1999 $26 $25,649 ($5,273) ($1,114) ($515) $16,793 $(282) $35,284
=============================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
7<PAGE>
<PAGE>
COMMUNITY FINANCIAL CORP. and SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 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 in investment securities and mortgage-backed
securities.
(2) BASIS OF FINANCIAL STATEMENT 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, 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.
8<PAGE>
<PAGE>
(4) EARNINGS PER SHARE
<TABLE>
<CAPTION>
For the three months ended March 31, 1999
-----------------------------------------
Income Shares Per Share
Amount
<S> <C> <C> <C>
Basic earnings per share
Income available to
common shareholders $ 200,000 2,089,493 $ 0.10
Effect of dilutive activities
Stock options 0
Management recognition plan 0
Dilutive earnings per share
Income available to
common shareholders $ 200,000 2,089,493 $ 0.10
</TABLE>
<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>
9<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
- ----------------------------------------------------------------
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1999 AND DECEMBER
31, 1998.
Total assets increased by $752,000 or 0.2% from $309.8 million
at December 31, 1998 to $310.6 million at March 31, 1999. Total
cash and cash equivalents (which includes federal funds sold)
decreased $4.2 million or 18.5% from $22.9 million at December
31, 1998 to $18.7 million at March 31, 1999. The Company's net
loan portfolio increased by $6.0 million or 3.8% from $157.2
million at December 31, 1998 to $163.2 million at March 31,
1999. The increase was primarily the result of an aggressive
campaign in the first quarter of 1999 which was targeted to
increase automobile lending, which resulted in an increase of
$5.9 million in the automobile portfolio. Securities available
for sale decreased by $2.6 million or 5.1% from $52.1 million at
December 31, 1998 to $49.5 million at March 31, 1999 due partly
to fund the increased loan volume. Securities held to maturity
increased by $1.2 million or 7.1%, from $16.9 million at
December 31, 1998 to $18.1 million at March 31, 1999.
Mortgage-backed and related securities available for sale
increased by $261,000 or 0.6% from $42.8 million at December 31,
1998 to $43.1 million at March 31, 1999. During the three months
ended March 31, 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 $282,000 (net of taxes) as the result of a decrease
in the market value. Total liabilities increased by $734,000 or
0.3%, from $274.6 million at December 31, 1998 to $275.3 million
at March 31, 1999. Deposits increased by $2.3 million or 1.0%
from $223.9 million at December 31, 1998 to $226.2 million at
March 31, 1999. Repurchase agreements decreased by $834,000 or
19.4% from $4.3 million at December 31, 1998 to $3.5 million at
March 31, 1999.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH
31, 1999 AND 1998.
NET INCOME. Net income was $200,000 for the three months ended
March 31, 1999, as compared to $153,000 for the three months
ended March 31, 1998. This represents an increase of $47,000,
or 30.7%. 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 decreased $189,000 or
8.0%, from $2.4 million for the three months ended March 31,
1998 to $2.2 million for the three months ended March 31, 1999.
This is the result of the net margin declining by 0.03% from
2.84% to 2.81% for the three months ended March 31, 1998 and
1999 respectively.
INTEREST INCOME. Interest income decreased by $277,000 or
5.0%, from $5.5 million for the three months ended March 31,
1998 to $5.2 million for the three months ended March 31, 1999.
Interest income on loans decreased by $224,000 or 6.3% from $3.5
million for the three months ended March 31, 1998 to $3.3
million for the three months ended March 31, 1999. The
annualized yields based on the average loan balance decreased 27
basis points from 8.78% for the three months ended March 31,
1998 to 8.51% for the three months ended March 31, 1999 as a
result of lower rates in the market. The increase in interest
income on mortgage-backed and related securities of $294,000 or
78.0%, was due to the change in the investment portfolio from
short term callable securities to longer term mortgage-backed
and related securities. Interest income on investments and
interest-bearing deposits decreased $347,000 or 21.9% as the
average balance decreased as a result of the portfolio
restructure.
<PAGE>
INTEREST EXPENSE. Interest expense decreased $88,000 or 2.8%,
from $3.1 million for the three months ended March 31, 1998 to
$3.0 million for the three months ended March 31, 1999. Interest
on deposits increased by $19,000 or 0.8%, from $2.4 million for
the three months ended March 31, 1998 to $2.4 million for the
three months ended March 31, 1999. Average deposits increased
$15.5 million or 7.5%, from $205.7 million for the three months
ended March 31, 1998 to $221.2 million for the three months
ended March 31, 1999. Average cost of deposits (on an annualized
basis) decreased from 4.6% for the three months ended March 31,
1998 to 4.3% for the three months ended March 31, 1999. Interest
on other borrowed funds decreased $107,000 or 14.3%, from
$749,000 for the three months ended March 31, 1998 to $642,000
for the three months ended March 31, 1999. The decrease was
primarily due to the retirement in 1998 of the $5.6 million
borrowed to fund the acquisitions made in 1997.
10<PAGE>
<PAGE>
PROVISION FOR LOAN LOSSES. The Company established provisions
for loan losses of $78,000 and $135,000 for the three months
ended March 31, 1999 and 1998 respectively. The Company's
provisions for loan losses for the three months ended March 31,
1999, were made to maintain the allowance for loan losses at an
adequate level during that period.
NONINTEREST INCOME. Noninterest income increased by $87,000,
or 23.0%, from $378,000 for the three months ended March 31,
1998 to $465,000 for the three months ended March 31, 1999. Of
the increase, service fees increased $49,000 or 15.2%, from
$323,000 for the three months ended March 31, 1998 to $372,000
for the three months ended March 31, 1999 as the result of new
fee schedules introduced in 1999. In addition, insurance and
annuity commissions increased $27,000 or 64.3%, as the result of
annuity sales.
NONINTEREST EXPENSE. Noninterest expense decreased by $93,000,
or 3.9%, from $2.4 million for the three months ended March 31,
1998 to $2.3 million for the three months ended March 31, 1999.
Compensation and benefits decreased $143,000, from $1.3 million
for the three months ended March 31, 1998 to $1.1 million for
the three months ended March 31, 1999. Included in the March 31,
1998 figure is $147,000 (pre-tax) to close the defined benefit
plan. Other expenses increased $50,000 or 4.5%, from $1.1
million for the three months ended March 31, 1998 to $1.2
million for the three months ended March 31, 1999.
INCOME TAX EXPENSE. The Company's income tax expense was
estimated at $81,000 and $80,000 for the three months ended
March 31, 1999 and 1998, respectively. The effective tax rate
for the three months ended March 31, 1999 and 1998 was 30.0% and
34.3%, respectively.
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.
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.
11<PAGE>
<PAGE>
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 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 is scheduled for testing in the
second quarter of 1999. 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, NA 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 $163,000. 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, 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 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 $92.5 million at March 31, 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.
The Company anticipates that it will have sufficient funds
available to meet commitments outstanding and to meet loan
demand. As of March 31, 1999, 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 19.9%, 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
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 for the three
month period ended March 31, 1999
(b) 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: May 12, 1999 /s/ Wayne H. Benson
-------------------
Wayne H. Benson
(Chief Executive Officer)
Date: May 12, 1999 /s/ Douglas W. Tompson
----------------------------
Douglas W. Tompson
(Principal Financial Officer)
14
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