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 June 30, 2000
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 August 8, 2000, the Registrant had 2,211,529 shares of Common
Stock issued and outstanding.
<PAGE>
CONTENTS
PART I. FINANCIAL INFORMATION PAGE
----------------------------- ----
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2000
and December 31, 1999.......................................3
Consolidated Statements of Income for the Three-Month and
Six-Month Periods Ended June 30, 2000 and 1999..............4
Consolidated Statements of Cash Flows for the Three-Month and
Six-Month Period Ended June 30, 2000 and 1999................5
Consolidated Statements of Stockholders' Equity for the
Six-Month Period Ended June 30, 2000.........................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>
PART 1 - FINANCIAL INFORMATION
COMMUNITY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
2000 1999
ASSETS (UNAUDITED) (AUDITED)
------ ----------- -----------
<S> <C> <C>
CASH AND CASH EQUIVALENTS:
CASH $ 11,476 $ 8,941
INTEREST BEARING DEPOSITS 5,165 6,714
-------- --------
TOTAL CASH AND CASH EQUIVALENTS 16,641 15,655
TIME DEPOSITS 0 0
SECURITIES AVAILABLE FOR SALE (amortized cost 58,983 43,771
of $60,801 (2000) and $45,398 (1999))
SECURITIES HELD TO MATURITY (estimated market value 1,626 18,407
of $1,627 (2000) and $18,249 (1999))
MORTGAGE-BACK & RELATED SECURITIES AVAILABLE FOR SALE 31,624 34,341
(amortized cost of $33,282 (2000) and $36,167(1999))
MORTGAGE-BACK & RELATED SECURITIES HELD TO MATURITY 0 338
(estimated market value of $0 (2000) and $352 (1999))
LOANS RECEIVABLE, net 181,081 179,467
FORECLOSED REAL ESTATE, net 190 257
REAL ESTATE HELD FOR SALE 0 0
ACCRUED INTEREST RECEIVABLE 2,620 2,865
PREMISES AND EQUIPMENT, net 7,632 7,701
PREPAID INCOME TAXES 0 0
DEFERRED INCOME TAXES 1,317 1,518
GOODWILL 4,031 4,158
CORE DEPOSIT INTANGIBLE 343 416
OTHER ASSETS 735 1,025
-------- --------
TOTAL ASSETS $ 306,823 $ 309,919
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
DEPOSITS $ 238,134 $ 225,170
FEDERAL HOME LOAN BANK ADVANCES 26,530 42,000
REPURCHASE AGREEMENTS 4,577 6,891
FEDERAL FUNDS PURCHASED 1,773 0
ADVANCES FROM BORROWERS FOR TAXES AND INSURANCE 55 25
ACCRUED INTEREST PAYABLE 579 484
ACCRUED INCOME TAXES 96 163
OTHER LIABILITIES 683 1,360
-------- --------
TOTAL LIABILITIES $ 272,427 $ 276,093
-------- --------
STOCKHOLDERS' EQUITY:
COMMON STOCK, $.01 PAR VALUE PER SHARE:
7,000,000 SHARES AUTHORIZED; 2,211,529
AND 2,213,645 SHARES ISSUED AT JUNE 30, 2000
AND DECEMBER 31, 1999 $ 26 $ 26
ADDITIONAL PAID-IN CAPITAL 25,641 25,641
TREASURY STOCK (5,600) (5,600)
UNALLOCATED ESOP SHARES (874) (902)
SHARES HELD FOR MANAGEMENT RECOGNITION PLAN (115) (230)
RETAINED EARNINGS 17,612 17,170
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (2,294) (2,279)
-------- --------
TOTAL STOCKHOLDER EQUITY $ 34,396 $ 33,826
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 306,823 $ 309,919
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
COMMUNITY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
2000 1999 2000 1999
------------------ -------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
INTEREST ON LOANS $ 3,861 $ 3,604 $ 7,687 $ 6,912
INTEREST ON MORTGAGE-BACKED AND RELATED SECURITIES 538 661 1,099 1,332
INTEREST ON INVESTMENTS AND INTEREST-BEARING DEPOSITS 1,073 1,167 2,141 2,407
------- ------- ------- -------
TOTAL INTEREST INCOME $ 5,472 $ 5,432 $ 10,927 $ 10,651
------- ------- ------- -------
INTEREST EXPENSE:
INTEREST ON DEPOSITS $ 2,570 $ 2,372 $ 5,021 $ 4,774
INTEREST ON OTHER BORROWED FUNDS 554 679 1,142 1,321
------- ------- ------- -------
TOTAL INTEREST EXPENSE $ 3,124 $ 3,051 $ 6,163 $ 6,095
------- ------- ------- -------
NET INTEREST INCOME $ 2,348 $ 2,381 $ 4,764 $ 4,556
PROVISIONS FOR LOAN LOSSES 406 188 $ 591 $ 266
------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES $ 1,942 $ 2,193 $ 4,173 $ 4,290
------- ------- ------- -------
NON-INTEREST INCOME:
SERVICE FEES $ 398 $ 474 $ 926 $ 846
INSURANCE AND ANNUITY COMMISSIONS 102 91 180 160
NET GAIN (LOSS) ON SALE OF SECURITIES 0 0 (4) 0
NET GAIN (LOSS) ON SALE OF FIXED ASSETS 0 0 7 0
OTHER 20 15 39 39
------- ------- ------- -------
TOTAL NON-INTEREST INCOME $ 520 $ 580 $ 1,148 $ 1,045
------- ------- ------- -------
NON-INTEREST EXPENSE:
COMPENSATION AND BENEFITS $ 1,022 $ 1,170 $ 2,157 $ 2,290
OCCUPANCY 153 155 298 298
EQUIPMENT AND FURNISHING 114 192 308 364
DATA PROCESSING 142 154 283 322
FEDERAL DEPOSIT INSURANCE PREMIUMS 45 42 92 84
PROFESSIONAL FEES 243 129 438 203
SUPPLIES 54 72 100 150
GOODWILL 100 100 200 200
OTHER 401 411 796 795
------- ------- ------- -------
TOTAL NON-INTEREST EXPENSE $ 2,274 $ 2,425 $ 4,672 $ 4,706
------- ------- ------- -------
INCOME BEFORE INCOME TAXES $ 188 $ 348 $ 649 $ 629
PROVISION FOR INCOME TAXES 59 87 206 168
------- ------ ------- -------
NET INCOME $ 129 $ 261 $ 443 $ 461
======= ======= ======= =======
OTHER COMPREHENSIVE INCOME(LOSS), NET OF INCOME TAX
UNREALIZED GAIN(LOSS) ON SECURITIES AVAILABLE FOR
SALE ARISING IN PERIOD 8 (976) (15) (1,262)
------- ------ ------- -------
COMPREHENSIVE INCOME $ 137 $ (715) $ 428 $ (801)
======= ======= ======= =======
WEIGHTED SHARES OUTSTANDING FOR BASIC EARNINGS PER SHARE 2,123,431 2,093,519 2,123,535 2,090,666
BASIC EARNINGS PER SHARE $ 0.06 $ 0.12 $ 0.21 $ 0.22
======= ======= ======= =======
WEIGHTED SHARES OUTSTANDING FOR DILUTED EARNINGS PER SHARE 2,123,431 2,093,519 2,123,535 2,090,666
DILUTED EARNINGS PER SHARE $ 0.06 $ 0.12 $ 0.21 $ 0.22
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
COMMUNITY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
2000 1999 2000 1999
-------------------- ---------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
NET INCOME $ 129 $ 261 $ 443 $ 461
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
PROVISION FOR DEPRECIATION 114 167 303 347
PROVISION FOR LOAN LOSSES 406 188 591 266
ACCRETION OF DISCOUNTS ON SECURITIES (8) (10) (15) (30)
AMORTIZATION OF PREMIUMS ON SECURITIES 17 37 33 80
AMORTIZATION OF GOODWILL & CORE DEPOSIT INTANGIBLES 100 100 200 200
AMORTIZATION OF MANAGEMENT RECOGNITION PLAN 57 54 115 108
(INCREASE) DECREASE IN ACCRUED INTEREST RECEIVABLE 69 419 244 164
(INCREASE) DECREASE IN OTHER ASSETS 170 (381) 291 (45)
(DECREASE) INCREASE IN ACCRUED INCOME TAXES (364) (163) (67) (82)
(INCREASE) DECREASE IN DEFERRED INCOME TAXES 207 (502) 201 (645)
INCREASE (DECREASE) IN ACCRUED INTEREST PAYABLE (154) (16) 96 75
INCREASE (DECREASE) IN OTHER LIABILITIES (55) 51 (678) (858)
STOCK DIVIDEND ON FHLB STOCK (18) 0 (45) 0
LOSS (GAIN) ON SALE OF SECURITIES AND MORTGAGE-BACKED
AND RELATED SECURITIES 0 0 4 0
LOSS (GAIN) IN SALE OF PREMISES AND EQUIPMENT 0 0 (7) 0
-------- ------- ------ -------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES $ 670 $ 205 $ 1,709 $ 41
-------- ------- ------ -------
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 0 1,808 683 5,153
PROCEEDS FROM MATURITIES OF SECURITIES AVAILABLE
FOR SALE 1,001 3,338 1,149 18,018
PROCEEDS FROM SALES OF MORTGAGE-BACKED AND RELATED
SECURITIES AVAILABLE FOR SALE 0 0 321 0
PURCHASE OF MORTGAGE-BACKED AND RELATED SECURITIES
AVAILABLE FOR SALE 0 (2,000) 0 (5,000)
PURCHASE OF SECURITIES AVAILABLE FOR SALE (600) (5,478) (600) (17,478)
PURCHASE OF SECURITIES HELD TO MATURITY 0 (2,816) 0 (7,366)
DECREASE (INCREASE) IN LOAN RECEIVABLE (3,544) (11,659) (2,013) (17,669)
PRINCIPAL COLLECTED ON MORTGAGE-BACKED AND RELATED
SECURITIES 1,604 2,238 2,887 4,570
DECREASE (INCREASE) IN FORECLOSED REAL ESTATE 51 (90) 67 (4)
PURCHASE OF PREMISES AND EQUIPMENT (202) (174) (234) (643)
PROCEEDS FROM SALE OF EQUIPMENT 0 0 7 0
PURCHASE OF FEDERAL HOME LOAN BANK STOCK 0 0 0 0
PURCHASE OF FEDERAL RESERVE BANK STOCK 0 0 0 0
PROCEEDS FROM SALE OF FEDERAL HOME LOAN BANK STOCK 0 0 0 0
------- ------- ------- -------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES $ (1,690)$(14,833) $ 2,267 $(20,419)
------- ------- ------- -------
</TABLE>
4
<PAGE>
COMMUNITY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
2000 1999 2000 1999
------------------- ----------------
<S> <C> <C> <C> <C>
FINANCING ACTIVITIES:
NET INCREASE (DECREASE) IN DEPOSITS $ 7,967 $ (3,251) $ 12,964 $ (971)
(DECREASE) INCREASE IN ADVANCES FROM BORROWERS
FOR TAXES AND INSURANCE 10 58 30 83
INCREASE (DECREASE) IN FHLB ADVANCES (3,562) 5,841 (15,470) 5,841
INCREASE (DECREASE) IN OTHER BORROWINGS 1,773 0 1,773 0
INCREASE (DECREASE) IN REPURCHASE AGREEMENTS (1,593) 5,169 (2,315) 4,335
PROCEEDS FROM SALE OF STOCK 0 0 0 0
UNEARNED EMPLOYEE STOCK OWNERSHIP PLAN 28 0 28 50
MARKET ADJUSTMENT OF EMPLOYEE STOCK OWNERSHIP PLAN 0 0 0 0
PURCHASE OF SHARES FOR MRP 0 0 0 0
MARKET ADJUSTMENT OF MRP 0 0 0 0
STOCK OPTION PLAN 0 0 0 0
PURCHASE OF TREASURY STOCK 0 (194) 0 (194)
------- ------- -------- -------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES $ 4,623 $ 7,623 $ (2,990)$ 9,144
------- ------- ------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,603 (7,005) 986 (11,234)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 13,038 18,673 15,655 22,902
------- ------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 16,641 $ 11,668 $ 16,641 $ 11,668
======= ======= ======= =======
SUPPLEMENTAL DISCLOSURES:
ADDITIONAL CASH FLOWS INFORMATION:
CASH PAID FOR:
INTEREST ON DEPOSITS, ADVANCES AND
OTHER BORROWINGS $ 3,278 $ 3,304 $ 6,068 $ 6,170
INCOME TAXES:
FEDERAL $ 305 $ 250 $ 305 $ 250
STATE $ 0 $ 0 $ 0 $ 0
SCHEDULE OF NONCASH INVESTING ACTIVITIES:
STOCK DIVIDENDS DISTRIBUTED BY THE
FEDERAL HOME LOAN BANK OF CHICAGO $ 18 $ 0 $ 45 $ 0
SECURITIES, MORTGAGE-BACKED AND RELATED SECURITIES
TRANSFERRED TO AVAILABLE FOR SALE $ 16,433 $ 0 $ 16,433 $ 0
</TABLE>
5
<PAGE>
COMMUNITY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN TREASURY UNALLOCATED MRP RETAINED COMPREHENSIVE COMPREHENSIVE
STOCK CAPITAL STOCK ESOP SHARES STOCK EARNINGS INCOME TOTAL INCOME
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE
DECEMBER 31, 1999 $26 $25,641 ($5,600) $( 902) $( 230) $17,170 $(2,279) $33,826
COMPREHENSIVE INCOME
NET INCOME $442 $442 $442
----
OTHER COMPREHENSIVE INCOME
UNREALIZED GAINS (LOSS)
ON SECURITIES $(20)
RELATED TAX EFFECTS $ 8
----
RELASED GAINS (LOSS)
ON SECURITIES (4)
RELATED TAX EFFECTS 1
----
(3)
OTHER COMPREHENSIVE INCOME $(15) $(15) $(15)
----
COMPREHENSIVE INCOME $427
----
SALE OF
COMMON STOCK $0
UNALLOCATED
ESOP SHARES $28 $ 28
SHARES HELD
FOR MANAGEMENT
RECOGNITION PLAN $115 $115
TREASURY STOCK $0
ESOP SOP 93-6
ADJUSTMENT $0
STOCK OPTION PLAN $0
DIVIDENDS $0
--------------------------------------------------------------------------------------
BALANCE
June 30, 2000 $26 $25,641 ($5,600) $( 874) $( 115) $17,612 $(2,294) $34,396
======================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
COMMUNITY FINANCIAL CORP. and SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2000
(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 Bank of
Illinois, 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 six
months ended June 30, 2000 and 1999.
(3) PRINCIPLES OF CONSOLIDATION
The accompanying unaudited consolidated financial statements include the
accounts of Community Financial Corp, Community Bank & Trust, N.A.,
American Bank of Illinois, 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 June 30, 2000
----------------------------------------
<S> <C> <C> <C>
Basic earnings per share:
Income available to Common Shareholders $ 128,977 2,123,431 $ 0.06
Effect of dilutive activities:
Stock options 0
Management recognition plan 0
Dilutive earnings per share:
Income available to Common Shareholders $ 128,977 2,123,431 $ 0.06
For the six months ended June 30, 2000
--------------------------------------
Basic earnings per share:
Income available to Common Shareholder $ 442,488 2,123,535 $ 0.21
Effect of dilutive activities:
Stock options 0
Management recognition plan 0
Dilutive earnings per share:
Income available to Common Shareholders $ 442,488 2,123,535 $ 0.21
</TABLE>
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
--------------------------------------------------------------------------------
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2000 AND DECEMBER 31, 1999.
Total assets decreased by $ 3.1 million, or 1.0%, from $309.9 million at
December 31, 1999 to $306.8 million at June 30, 2000. Total cash and cash
equivalents (which includes federal funds sold) increased by $1.0 million or
6.4% from $15.7 million at December 31, 1999 to $16.6 million at June 30, 2000.
In May, 2000 , the Company's affiliates Egyptian State Bank and Saline County
State Bank were merged into one bank charter with Egyptian State Bank being the
survivor. As a result of this merger, the held to maturity portfolio of
investment securities totaling $16.1 million and mortgage-backed and related
securities totaling $319,000 were reclassified as available for sale. The
Company has established a goal of reducing its short term borrowing position due
to the rising cost to carry this type of liability. In order to achieve this
goal, the Company has tightened its lending requirements and will refrain from
using excess funds to purchase investments. The Company's total portfolio of
investment securities decreased by $1.6 million, or 2.6%, from $62.2 million at
December 31, 1999 to $60.6 million at June 30, 2000. The decrease was due to
scheduled maturities. The Company's portfolio of mortgage-backed and related
securities, decreased by $3.1 million, or 8.9%, from $34.7 million at December
31, 1999 to $31.6 million at June 30, 2000. The decrease was the result of
scheduled repayments. During the six months ended June 30, 2000, 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 $2.3million (net of taxes) as a
result of a decrease in the market value. The Company's loan portfolio increased
by $1.6 million, or 0.9% from $179.5 million at December 31, 1999 to $181.1
million at June 30, 2000. Total liabilities decreased by $3.7 million or 1.3%
from $276.1 million at December 31, 1999 to $272.4 million at June 30, 2000.
Deposits increased $13.0 million, or 5.8%, from $225.2 million at December 31,
1999 to $238.1 million at June 30, 2000. The increase was primarily due to a
deposit promotion which raised $14.6 million at an average cost of 6.5% with an
average life of 25 months. The proceeds were used to reduce short term
borrowings from the FHLB which carried an average cost 6.9%. Borrowings
decreased $16.0 million, or 32.7%, from $48.9 million at December 31, 1999 to
$32.9 million at June 30, 2000.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE
30, 2000 AND 1999.
NET INCOME. Net income decreased by $132,000 or 50.6%, from $261,000 for the
three months ended June 30, 1999, to $129,000 for the three months ended June
30, 2000. The decrease was primarily due to the combined effects of a $33,000
decrease in net interest income, a $218,000 increase in provisions for loan
losses and a $60,000 decrease in non-interest income, partially offset by a
$151,000 decrease in non-interest expense. Included in the non-interest expense
for the quarter ended June 30, 2000, was a non-recurring pre-tax charge of
$89,000 to defend the company's position in a proxy contest. The increase in the
provision for loan losses was the result of the quarterly review of the
allowance for loan and lease losses recognizing a deficiency due to the changing
economic conditions that higher interest rates have had on certain credits
within the commercial loan portfolio.
Net income decreased by $18,000, or 3.9%, from $461,000 for the six months ended
June 30, 1999, to $443,000 for the six months ended June 30, 2000. Net interest
income increased by $208,000, or 4.5%, from $4.6 million for the six months
ended June 30, 1999 to $4.8 million for the six months ended June 30, 2000.
Provision for loan losses increased by $325,000, or 122.2%, from $266,000 for
the six months ended June 30, 1999 to $591,000 for the six months ended June 30,
2000. The increase in the provision for loan losses was the result of the
quarterly review of the allowance for loan and lease losses recognizing a
deficiency due to the changing economic conditions that higher interest rates
have had on certain credits within the commercial loan portfolio. Non-interest
income increased $103,000, or 10.3%, from $1.0 million for the six months ended
June 30, 1999 to $1.1 million for the six months ended June 30, 2000.
Non-interest expense decreased by $34,000, or 0.7%, from $4.7 million for the
six months ended June 30, 1999 to $4.7 million for the six months ended June 30,
2000. Included in the non-interest expense for the six months ended June 30,
2000 was a non-recurring pre-tax charge of $169,000 to defend the company's
position in a proxy contest.
NET INTEREST INCOME. Net interest income decreased $33,000, or 1.4%, from $2.4
million for the three months ended June 30, 1999, to $2.3 million for the three
months ended June 30, 2000. The decrease was due to an annualized decrease of 9
basis points in the spread on the yield of interest earning assets minus the
cost of interest bearing liabilities, from 2.83% for the three months ended June
30, 1999 to 2.74% for the three months ended June 30, 2000.
8
<PAGE>
Net interest income increased by $208,000, or 4.5%, from $4.6 million for the
six months ended June 30, 1999 to $4.8 million for the six months ended June 30,
2000. The increase was primarily due to the combination of the average volume of
interest earning assets decreasing by only $3.6 million, or 1.3%, from $287.6
million for the six months ended June 30, 1999 to $284.0 million for the six
months ended June 30, 2000 while the average volume of interest bearing
liabilities decreased by $14.3 million, or 5.4% from $265.8 million for the six
months ended June 30, 1999 to $251.5 million for the six months ended June 30,
2000. On an annualized basis, the average yield on interest earning assets
increased by 29 basis points from 7.4% for the six months ended June 30, 1999 to
7.7% for the six months ended June 30, 2000 as compared to the average cost of
interest bearing liabilities increasing by 31 basis points from 4.6% for the six
months ended June 30, 1999 to 4.9% for the six months ended June 30, 2000.
INTEREST INCOME. Interest income increased by $40,000, or 0.7%, from $5.4
million for the three months ended June 30, 1999 to $5.5 million for the three
months ended June 30, 2000. The increase is primarily the result of the average
loan volume increasing $11.4 million, or 6.7%, from $170.4 million for the three
months ended June 30, 1999 to $181.8 million for the three months ended June 30,
2000 while the annualized yield increased 3 basis points from 8.46% to 8.49% for
the three months ended June 30, 1999 and 2000 respectively. The average volume
for mortgage-backed and related securities, investments and interest-bearing
deposits decreased $19.6 million, or 17.4%, from $112.6 million for the three
months ended June 30, 1999 to $93.0 for the three months ended June 30, 2000
while the annualized yield increased 47 basis points from 6.0% to 6.5% for the
three months ended June 30, 1999 and 2000 respectively.
Interest income increased by $276,000, or 2.6%, from $10.7 million for the six
months ended June 30, 1999 to $10.9 million for the six months ended June 30,
2000. The increase is the result of a mix change in interest earning assets. The
average loan volume increased by $18.4 million, or 11.3%, from $162.9 million
for the six months ended June 30, 1999 to $181.3 million for the six months
ended June 30, 2000. The average volume for mortgage-backed and related
securities, investments and interest-bearing deposits decreased $22.0 million,
or 17.6%, from $124.7 million for the six months ended June 30, 1999 to $102.7
million for the six months ended June 30, 2000.
INTEREST EXPENSE. Interest expense increased by $73,000 or 2.4%, from $3.1
million for the three months ended June 30, 1999 to $3.1 million for the three
months ended June 30, 2000. The average volume of interest bearing deposits
decreased by $3.9 million or 1.8%, from $215.9 million for the three months
ended June 30, 1999 to $212.0 million for the three months ended June 30, 2000.
The annualized rate increased by 40 basis points, from 4.4% to 4.8% for the
three months ended June 30, 1999 and 2000 respectively. The average volume on
borrowed funds decreased $12.8 million, or 26.3%, from $48.6 million for the
three months ended June 30, 1999 to $35.8 million for the three months ended
June 30, 2000. The annualized rate on borrowed funds increased 60 basis points,
from 5.6% to 6.2% for the three months ended June 30, 1999 and 2000
respectively.
Interest expense increased by $68,000 or 1.1%, from $6.1 million for the six
months ended June 30, 1999 to $6.2 million for the six months ended June 30,
2000. The increase is primarily the result of increasing rates. The average
volume of interest bearing deposits decreased by $5.3 million or 2.4%, from
$218.6 million for the six months ended June 30, 1999 to $213.3 million for the
six months ended June 30, 2000. The annualized rate increased 34 basis points,
from 4.4% to 4.7% for the six months ended June 30, 1999 and 2000 respectively.
The average volume on borrowed funds decreased by $9.0 million, or 19.1%, from
$47.2 million for the six months ended June 30, 1999 to $38.2 million for the
six months ended June 30, 2000. The annualized rate on borrowed funds increased
38 basis points, from 5.6% to 6.0% for the six months ended June 30, 1999 and
2000 respectively.
PROVISION FOR LOAN LOSSES. The Company established provisions for loan losses of
$406,000 and $188,000 for the three months ended June 30, 2000 and 1999,
respectively. The increase in the provision for loan losses was based on the
quarterly analysis of the allowance for loan and lease loss reserves indicating
that additional reserves were needed. The review process applies different risk
ratings to the concentrations of credit within the total loan portfolio. In
addition the process takes into consideration the effect that changing economic
conditions has had on individual credits in the past, present and future. The
increase in the provision for loan losses was the result of recognizing a
deficiency due to applying the review process along with factoring in a 20%
growth within the commercial portfolio over the past 18 months and certain
credits within the commercial loan portfolio.
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The Company established provisions for loan losses of $591,000 and $266,000 for
the six months ended June 30, 2000 and 1999, respectively. The increase in the
provision for loan losses was partly the result of recognizing the risk in the
growth of the loan portfolio during the twelve months ended June 30, 2000 as the
average loan volume increased $18.4 million, or 11.3%, from $162.9 million for
the period ended June 30, 1999 to $181.3 million for the period ended June 30,
2000. In addition the quarterly analysis of the allowance for loan and lease
loss reserves indicated that additional reserves were needed. The review process
applies different risk ratings to the concentrations of credit within the total
loan portfolio. In addition the process takes into consideration the effect that
changing economic conditions has had on individual credits in the past, present
and future. The increase in the provision for loan losses was the result of
recognizing a deficiency due to applying the review process along with factoring
in a 20% growth within the commercial portfolio over the past 18 months and
certain credits within the commercial loan portfolio.
NONINTEREST INCOME. Noninterest income decreased by $60,000, or 10.5%, from
$580,000 for the three months ended June 30, 1999 to $520,000 for the three
months ended June 30, 2000. Of the decrease, $76,000 was due to decreased
service fees from $474,000 for the three months ended June 30, 1999 to $398,000
for the three months ended June 30, 2000. Included in the service fees total for
the three months ended June 30, 1999 was a nonrecurring fee of $66,000 collected
on short term commercial loans.
Noninterest income increased by $103,000, or 9.8%, from $1.0 million for the six
months ended June 30, 1999 to $1.1 million for the six months ended June 30,
2000. Of the increase, $80,000 was due to increased service fees which is a
result of growth in both the commercial loan portfolio and deposit accounts.
NONINTEREST EXPENSE. Noninterest expense decreased by $151,000, or 6.2%, from
$2.4 million for the three months ended June 30, 1999 to $2.3 million for the
three months ended June 30, 2000. Of the decrease, $148,000 was due to the
decrease in compensation and benefits. Professional fees increased $114,000, or
88.4%, from $129,000 for the three months ended June 30, 1999 to $243,000 for
the three months ended June 30, 2000. The increase was primarily due to a
non-recurring pre-tax charge of $89,000 to defend the company's position in a
proxy contest.
Noninterest expense decreased by $34,000, or 0.7%, from $4.7 million for the six
months ended June 30, 1999 to $4.7 million for the six months ended June 30,
2000. Of the decrease, compensation and benefits decreased $133,000, or 5.8%,
from $2.3 million for the six months ended June 30, 1999 to $2.2 million for the
six months ended June 30, 2000. Professional fees increased $235,000, or 115.8%,
from $203,000 for the six months ended June 30, 1999 to $438,000 for the six
months ended June 30, 2000. The increase was primarily due to a non-recurring
pre-tax charge of $169,000 to defend the company's position in a proxy contest.
INCOME TAX EXPENSE. The Company's income tax expense was estimated at $59,000
and $87,000 with an effective tax rate of 31.4% and 25.0 % for the three months
ended June 30, 2000 and 1999, respectively. For the six months ended June 30,
2000 and 1999, income taxes were estimated to be $206,000 and $168,000, with an
effective tax rate of 31.7% and 26.7 respectively.
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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.
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 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 $90.6 million at June 30, 2000
classified as available for sale. Another source of liquidity is the Bank's
ability to obtain advances from the FHLB of Chicago. In addition, the Company
maintains a significant portion of its investments in interest-bearing deposits
at other financial institutions that will be available when needed.
The Company anticipates that it will have sufficient funds available to meet
commitments outstanding and to meet loan demands. As of June 30, 2000, the
Company's ratios of Tier 1 capital to average total assets was 10.7%, as
compared to the required level of 4.0%, respectively. The risk-based capital
ratio at that date was 19.5%, as compared to the requirement of 8.0%.
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PART II. OTHER INFORMATION
-----------------
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
The Company's Annual Meeting of Stockholders was held on April 27, 2000.
1,662,441 shares of the Company's common stock were represented at the
Annual Meeting in person or by proxy.
Stockholders voted in favor of the election of two nominees for directors.
The voting results for each nominee were as follows:
Votes in Favor
Nominee of Election Votes Withheld
------- --------------- --------------
C. Richard King 805,717 10,882
Steven L. Schonert 806,022 10,577
Barret Rochman 845,792 50
Michael Nadler 845,617 225
Stockholders voted in favor of the following stockholder proposal:
"The Board of Directors (a) engage the services of a consultant or
other advisor which has experience in advising financial institutions
to make recommendations to the Board of Directors as to specific
actions designed to improve earnings of Community Financial Corp. and
enhance stockholder value, and (b) prepare a report regarding the
advisor's or consultant's recommendations, at reasonable expense, for
distribution to stockholders within six months of this meeting of
stockholders."
The voting results were as follows:
For Against Abstain
--- ------- -------
851,312 802,681 8,448
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
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SIGNATURES
Pursuant to the requirements of the Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMMUNITY FINANCIAL CORP.
Date: August 11, 2000 /s/ Wayne H. Benson
------------------------------
Wayne H. Benson
(Chief Executive Officer)
Date: August 11, 2000 /s/ Douglas W. Tompson
------------------------------
Douglas W. Tompson
(Principal Financial Officer)
13
