<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, 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 November 1, 2000, the Registrant had 2,211,529 shares of
Common Stock issued and outstanding.
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<TABLE>
CONTENTS
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
--------------------- ----
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 2000
and December 31, 1999...........................................................................3
Consolidated Statements of Income for the Three-Month and Nine-Month
Periods Ended September 30, 2000 and 1999.......................................................4
Consolidated Statements of Cash Flows for the Three-Month and Nine-Month
Period Ended September 30, 2000 and 1999........................................................5
Consolidated Statements of Stockholders' Equity for the
Nine-Month Period Ended September 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
</TABLE>
2
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<TABLE>
PART 1 - FINANCIAL INFORMATION
COMMUNITY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<CAPTION>
SEPTEMBER 30 DECEMBER 31
2000 1999
ASSETS (UNAUDITED) (AUDITED)
------ ----------- -----------
<S> <C> <C>
CASH AND CASH EQUIVALENTS:
CASH $ 6,870 $ 8,941
INTEREST BEARING DEPOSITS 6,029 6,714
-------- --------
TOTAL CASH AND CASH EQUIVALENTS 12,899 15,655
TIME DEPOSITS 0 0
SECURITIES AVAILABLE FOR SALE (amortized cost 57,572 43,771
of $58,851 (2000) and $45,398 (1999))
SECURITIES HELD TO MATURITY (estimated market value 1,209 18,407
of $1,213 (2000) and $18,249 (1999))
MORTGAGE-BACK & RELATED SECURITIES AVAILABLE FOR SALE 30,368 34,341
(amortized cost of $31,669 (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 176,407 179,467
FORECLOSED REAL ESTATE, net 535 257
REAL ESTATE HELD FOR SALE 0 0
ACCRUED INTEREST RECEIVABLE 2,932 2,865
PREMISES AND EQUIPMENT, net 7,376 7,701
PREPAID INCOME TAXES 664 0
DEFERRED INCOME TAXES 958 1,518
GOODWILL 3,969 4,158
CORE DEPOSIT INTANGIBLE 306 416
OTHER ASSETS 672 1,025
-------- --------
TOTAL ASSETS $ 295,867 $ 309,919
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
DEPOSITS $ 235,199 $ 225,170
FEDERAL HOME LOAN BANK ADVANCES 20,291 42,000
REPURCHASE AGREEMENTS 4,642 6,891
FEDERAL FUNDS PURCHASED 0 0
ADVANCES FROM BORROWERS FOR TAXES AND INSURANCE 51 25
ACCRUED INTEREST PAYABLE 784 484
ACCRUED INCOME TAXES 0 163
OTHER LIABILITIES 835 1,360
-------- --------
TOTAL LIABILITIES $ 261,802 $ 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 SEPTEMBER 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 (57) (230)
RETAINED EARNINGS 16,632 17,170
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (1,703) (2,279)
-------- --------
TOTAL STOCKHOLDER EQUITY $ 34,065 $ 33,826
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 295,867 $ 309,919
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
3
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<TABLE>
COMMUNITY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2000 1999 2000 1999
--------------------- ---------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
INTEREST ON LOANS $ 3,948 $ 3,825 $ 11,635 $ 10,737
INTEREST ON MORTGAGE-BACKED AND RELATED SECURITIES 515 663 1,614 1,995
INTEREST ON INVESTMENTS AND INTEREST-BEARING DEPOSITS 1,049 1,054 3,190 3,461
------- ------- ------- -------
TOTAL INTEREST INCOME $ 5,512 $ 5,542 $ 16,439 $ 16,193
------- ------- ------- -------
INTEREST EXPENSE:
INTEREST ON DEPOSITS $ 2,779 $ 2,306 $ 7,800 $ 7,080
INTEREST ON OTHER BORROWED FUNDS 433 807 1,575 2,128
------- ------- ------- -------
TOTAL INTEREST EXPENSE $ 3,212 $ 3,113 $ 9,375 $ 9,208
------- ------- ------- -------
NET INTEREST INCOME $ 2,300 $ 2,429 $ 7,064 $ 6,985
PROVISIONS FOR LOAN LOSSES 1,954 211 $ 2,545 $ 477
------- ------- ------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES $ 346 $ 2,218 $ 4,519 $ 6,508
------- ------- ------- -------
NON-INTEREST INCOME:
SERVICE FEES $ 412 $ 391 $ 1,338 $ 1,237
INSURANCE AND ANNUITY COMMISSIONS 95 81 275 241
NET GAIN (LOSS) ON SALE OF SECURITIES 0 0 (4) 0
NET GAIN (LOSS) ON SALE OF FIXED ASSETS 40 0 47 0
OTHER 17 21 56 60
------- ------- ------- -------
TOTAL NON-INTEREST INCOME $ 564 $ 493 $ 1,712 $ 1,538
------- ------- ------- -------
NON-INTEREST EXPENSE:
COMPENSATION AND BENEFITS $ 1,025 $ 987 $ 3,182 $ 3,277
OCCUPANCY 162 168 460 466
EQUIPMENT AND FURNISHINGS 188 175 496 539
DATA PROCESSING 155 138 438 460
FEDERAL DEPOSIT INSURANCE PREMIUMS 47 44 139 128
PROFESSIONAL FEES 183 41 621 244
SUPPLIES 78 73 178 223
GOODWILL 99 99 299 299
OTHER 402 397 1,198 1,192
------- ------- ------- -------
TOTAL NON-INTEREST EXPENSE $ 2,339 $ 2,122 $ 7,011 $ 6,828
------- ------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES $ (1,429) $ 589 $ (780) $ 1,218
PROVISION FOR (BENEFIT FROM) INCOME TAXES (448) 222 (242) 390
------- ------ ------- -------
NET INCOME (LOSS) $ (981) $ 367 $ (538) $ 828
======= ======= ======= =======
OTHER COMPREHENSIVE INCOME(LOSS), NET OF INCOME TAX
UNREALIZED GAIN(LOSS) ON SECURITIES AVAILABLE FOR
SALE ARISING IN PERIOD 591 (365) 576 (1,627)
------- ------- ------- -------
COMPREHENSIVE INCOME (LOSS) $ (390) $ 2 $ 38 $ (799)
======= ======= ======= =======
WEIGHTED SHARES OUTSTANDING FOR BASIC EARNINGS PER SHARE 2,121,524 2,077,591 2,122,860 2,093,515
BASIC EARNINGS (LOSS) PER SHARE $ (0.46) $ 0.18 $ (0.25) $ 0.40
======= ======= ======= =======
WEIGHTED SHARES OUTSTANDING FOR DILUTED EARNINGS PER SHARE 2,121,524 2,077,591 2,122,860 2,093,515
DILUTED EARNINGS (LOSS) PER SHARE $ (0.46) $ 0.18 $ (0.25) $ 0.40
======= ======= ======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
4
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<TABLE>
COMMUNITY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2000 1999 2000 1999
-------------------- --------------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
NET INCOME (LOSS) $ (981) $ 367 $ (538) $ 828
ADJUSTMENTS TO RECONCILE NET INCOME (LOSS)TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
PROVISION FOR DEPRECIATION 201 174 504 521
PROVISION FOR LOAN LOSSES 1,954 211 2,545 477
ACCRETION OF DISCOUNTS ON SECURITIES (8) (7) (23) (37)
AMORTIZATION OF PREMIUMS ON SECURITIES 15 42 48 123
AMORTIZATION OF GOODWILL & CORE DEPOSIT INTANGIBLES 99 100 299 299
AMORTIZATION OF MANAGEMENT RECOGNITION PLAN 58 54 173 162
(INCREASE) DECREASE IN ACCRUED INTEREST RECEIVABLE (311) 79 (67) 243
(INCREASE) DECREASE IN OTHER ASSETS 62 97 353 52
(DECREASE) INCREASE IN ACCRUED INCOME TAXES (760) 222 (827) 140
(INCREASE) DECREASE IN DEFERRED INCOME TAXES 54 (188) 263 (833)
INCREASE (DECREASE) IN ACCRUED INTEREST PAYABLE 204 121 300 196
INCREASE (DECREASE) IN OTHER LIABILITIES 153 (15) (525) (873)
STOCK DIVIDEND ON FHLB STOCK (48) 0 (93) 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 (40) 0 (47) 0
------- ------- ------ -------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES $ 652 $ 1,257 $ 2,369 $ 1,298
------- ------- ------ -------
INVESTING ACTIVITIES:
PROCEEDS FROM SALES OF SECURITIES HELD TO MATURITY 416 0 416 0
PROCEEDS FROM MATURITIES OF SECURITIES HELD TO
MATURITY 0 86 683 5,239
PROCEEDS FROM MATURITIES OF SECURITIES AVAILABLE FOR
SALE 2,000 7,000 3,149 25,018
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 0 0 (5,000)
PURCHASE OF SECURITIES AVAILABLE FOR SALE 0 (1,000) (600) (18,478)
PURCHASE OF SECURITIES HELD TO MATURITY 0 0 0 (7,366)
DECREASE (INCREASE) IN LOAN RECEIVABLE 2,720 (5,106) 699 (22,775)
PRINCIPAL COLLECTED ON MORTGAGE-BACKED AND RELATED
SECURITIES 1,604 1,878 4,491 6,448
DECREASE (INCREASE) IN FORECLOSED REAL ESTATE (345) 24 (278) 20
PURCHASE OF PREMISES AND EQUIPMENT (28) (123) (262) (766)
PROCEEDS FROM SALE OF EQUIPMENT 125 0 132 0
PURCHASE OF FEDERAL HOME LOAN BANK STOCK 0 (328) 0 (328)
------- ------- ------- -------
NET CASH PROVIDED BY (USED IN)INVESTING ACTIVITIES $ 6,492 $ 2,431 $ 8,751 $(17,988)
------- ------- ------- -------
</TABLE>
5
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<TABLE>
COMMUNITY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
2000 1999 2000 1999
------------------- -------------------
<S> <C> <C> <C> <C>
FINANCING ACTIVITIES:
NET INCREASE (DECREASE) IN DEPOSITS $ (2,935) $ (2,321) $ 10,029 $ (3,292)
(DECREASE) INCREASE IN ADVANCES FROM BORROWERS
FOR TAXES AND INSURANCE (4) (60) 26 23
INCREASE (DECREASE) IN FHLB ADVANCES (6,239) (2,917) (21,709) 2,924
INCREASE (DECREASE) IN OTHER BORROWINGS (1,773) 0 0 0
INCREASE (DECREASE) IN REPURCHASE AGREEMENTS 65 1,983 (2,250) 6,318
UNEARNED EMPLOYEE STOCK OWNERSHIP PLAN 0 0 28 50
PURCHASE OF TREASURY STOCK 0 (98) 0 (292)
------- ------- ------- -------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES $(10,886) $ (3,413) $(13,876) $ 5,731
------- ------- ------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,742) 275 (2,756) (10,959)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 16,641 11,668 15,655 22,902
------- ------- ------ -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 12,899 $ 11,943 $ 12,899 $ 11,943
======= ======= ======= =======
SUPPLEMENTAL DISCLOSURES:
ADDITIONAL CASH FLOWS INFORMATION:
CASH PAID FOR:
INTEREST ON DEPOSITS, ADVANCES AND
OTHER BORROWINGS $ 3,007 $ 3,249 $ 9,075 $ 9,419
INCOME TAXES:
FEDERAL $ 225 $ 0 $ 530 $ 250
STATE $ 0 $ 0 $ 0 $ 0
SCHEDULE OF NONCASH INVESTING ACTIVITIES:
STOCK DIVIDENDS DISTRIBUTED BY THE
FEDERAL HOME LOAN BANK OF CHICAGO $ 48 $ 0 $ 93 $ 0
SECURITIES, MORTGAGE-BACKED AND RELATED SECURITIES
TRANSFERRED TO AVAILABLE FOR SALE $ 0 $ 0 $ 16,433 $ 0
</TABLE>
6
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<TABLE>
COMMUNITY FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<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 ($538) ($538) ($538)
-------
OTHER COMPREHENSIVE
INCOME
UNREALIZED GAINS
(LOSS) ON SECURITIES $ 877
RELATED TAX EFFECTS (298)
-------
579
REALIZED GAINS (LOSS)
ON SECURITIES (4)
RELATED TAX EFFECTS 1
-------
(3)
OTHER COMPREHENSIVE
INCOME $576 $576 $ 576
-------
COMPREHENSIVE INCOME $ 38
--------
SALE OF
COMMON STOCK $0
UNALLOCATED
ESOP SHARES $ 28 $ 28
SHARES HELD
FOR MANAGEMENT
RECOGNITION PLAN $173 $173
TREASURY STOCK $0
ESOP SOP 93-6
ADJUSTMENT $0
STOCK OPTION PLAN $0
DIVIDENDS $0
-------------------------------------------------------------------------------------------
BALANCE
September 30, 2000 $26 $25,641 ($5,600) ($874) ($57) $16,632 ($1,703) $34,065
===========================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
7
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COMMUNITY FINANCIAL CORP. and SUBSIDIARIES
Notes to Consolidated Financial Statements
September 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 generally 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, 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
(Loss) Amount
-----------------------------------------
For the three months ended September 30, 2000
---------------------------------------------
<S> <C> <C> <C>
Basic earnings per share:
Income available to Common Shareholders $ (980,958) 2,121,524 $ (0.46)
Effect of dilutive activities:
Stock options 0
Management recognition plan 0
Dilutive earnings per share:
Income available to Common Shareholders $ (980,958) 2,121,524 $ (0.46)
<CAPTION>
For the nine months ended September 30, 2000
--------------------------------------------
<S> <C> <C> <C>
Basic earnings per share:
Income available to Common Shareholder $ (538,470) 2,122,860 $ (0.25)
Effect of dilutive activities:
Stock options 0
Management recognition plan 0
Dilutive earnings per share:
Income available to Common Shareholders $ (538,470) 2,122,860 $ (0.25)
</TABLE>
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF Operations
------------------------------------------------------------------------
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 2000 AND DECEMBER 31,
1999.
Total assets decreased by $14.0 million, or 4.5%, from $309.9 million at
December 31, 1999 to $295.9 million at September 30, 2000. Total cash and
cash equivalents (which includes federal funds sold) decreased by $2.8
million or 17.8% from $15.7 million at December 31, 1999 to $12.9 million at
September 30, 2000. 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 investment portfolio decreased by $7.7
million, or 8.0%, from $96.8 million at December 31, 1999 to $89.1 million
at September 30, 2000. The decrease is the result of securities either being
called or maturing and principal pay-down on mortgage-backed and related
securities. Securities classified as held to maturity reflect a decrease as
a result of the Company's affiliates, Egyptian State Bank and Saline County
State Bank, being merged in May 2000 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. During the nine months ended September 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 $1.7
million (net of taxes) as a result of a decrease in the market value. The
Company's loan portfolio decreased by $3.1 million, or 1.7% from $179.5
million at December 31, 1999 to $176.4 million at September 30, 2000. Total
liabilities decreased by $14.3 million or 5.2% from $276.1 million at
December 31, 1999 to $261.8 million at September 30, 2000. Deposits
increased $10.0 million, or 4.4%, from $225.2 million at December 31, 1999
to $235.2 million at September 30, 2000. The proceeds have been used to
reduce short term borrowings from the Federal Home Loan Bank (FHLB).
Borrowings decreased $24.0 million, or 49.1%, from $48.9 million at December
31, 1999 to $24.9 million at September 30, 2000.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS AND NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999.
NET INCOME. Net income decreased by $1.3 million, or 354.2%, from $367,000
for the three months ended September 30, 1999, to a net loss of $981,000 for
the three months ended September 30, 2000. The decrease was primarily due to
the combined effects of a $129,000 decrease in net interest income, a $1.7
million increase in provisions for loan losses, a $71,000 increase in
non-interest income and a $217,000 increase in non-interest expense. The
increase in the provision for loan losses was primarily the result of a
commercial loan write-off of $1.5 million. The U.S. Department of Justice
has attempted to seize certain assets of a customer which secured a loan due
to the customer's alleged involvement in a Ponzi scheme. In addition, the
results of the quarterly review of the allowance for loan and lease losses
identified the need to add $190,000 to reserves due to changing economic
conditions and the impact higher interest rates have had on certain credits
within the commercial loan portfolio.
Net income decreased by $1.4 million, or 169.1%, from $828,000 for the nine
months ended September 30, 1999, to a net loss of $538,000 for the nine
months ended September 30, 2000. Net interest income increased by $79,000,
or 1.1%, from $7.0 million for the nine months ended September 30, 1999 to
$7.1 million for the nine months ended September 30, 2000. Provision for
loan losses increased by $2.1 million, or 440.3%, from $477,000 for the nine
months ended September 30, 1999 to $2.5 million for the nine months ended
September 30, 2000. The increase in the provision for loan losses was
primarily the result of a commercial loan write-off of $1.5 million. The
U.S. Department of Justice has attempted to seize certain assets of a customer
which secured a loan due to the customer's alleged involvement in a Ponzi
scheme. In addition, the results of the quarterly review of the allowance for
loan and lease losses identified a need to increase reserves due to changing
economic conditions and the impact higher interest rates have had on certain
credits within the commercial loan portfolio. Non-interest income increased
$174,000, or 11.6%, from $1.5 million for the nine months ended September
30, 1999 to $1.7 million for the nine months ended September 30, 2000.
Non-interest expense increased by $183,000, or 2.7%, from $6.8 million for
the nine months ended September 30, 1999 to $7.0 million for the nine months
ended September 30, 2000. Included in the non-interest expense for the nine
months ended September 30, 2000 was a non-recurring pre-tax charge of
$242,000 to defend the company's position in a proxy contest.
9
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NET INTEREST INCOME. Net interest income decreased $129,000, or 5.4%, from
$2.4 million for the three months ended September 30, 1999, to $2.3 million
for the three months ended September 30, 2000. The decrease was due to an
annualized decrease of 12 basis points in the spread on the yield of
interest earning assets minus the cost of interest bearing liabilities, from
2.79% for the three months ended September 30, 1999 to 2.67% for the three
months ended September 30, 2000.
Net interest income increased by $79,000, or 1.1%, from $7.0 million for the
nine months ended September 30, 1999 to $7.1 million for the nine months
ended September 30, 2000. The increase was primarily due to the combination
of the average volume of interest earning assets decreasing by only $7.9
million, or 2.7%, from $289.8 million for the nine months ended September
30, 1999 to $281.9 million for the nine months ended September 30, 2000
while the average volume of interest bearing liabilities decreased by $15.9
million, or 6.0% from $264.8 million for the nine months ended September 30,
1999 to $248.9 million for the nine months ended September 30, 2000. On an
annualized basis, the average yield on interest earning assets increased by
33 basis points from 7.5% for the nine months ended September 30, 1999 to
7.8% for the nine months ended September 30, 2000 as compared to the average
cost of interest bearing liabilities increasing by 38 basis points from 4.6%
for the nine months ended September 30, 1999 to 5.0% for the nine months
ended September 30, 2000.
INTEREST INCOME. Interest income decreased by $30,000, or 0.5%, from $5.5
million for the three months ended September 30, 1999 to $5.5 million for
the three months ended September 30, 2000. The decrease is primarily the
result of the average volume of interest earning assets decreasing $16.7
million, or 5.7%, from $294.4 million for the three months ended September
30, 1999 to $277.7 million for the three months ended September 30, 2000
while the annualized yield increased 41 basis points from 7.53% to 7.94% for
the three months ended September 30, 1999 and 2000, respectively.
Interest income increased by $246,000, or 1.5%, from $16.2 million for the
nine months ended September 30, 1999 to $16.4 million for the nine months
ended September 30, 2000. The increase is the result of a mix change in
interest earning assets. The average loan volume increased by $12.4 million,
or 7.3%, from $169.0 million for the nine months ended September 30, 1999 to
$181.4 million for the nine months ended September 30, 2000. The average
volume for mortgage-backed and related securities, investments and
interest-bearing deposits decreased $16.4 million, or 14.8%, from $110.8
million for the nine months ended September 30, 1999 to $94.4 million for
the nine months ended September 30, 2000.
INTEREST EXPENSE. Interest expense increased by $99,000 or 3.2%, from $3.1
million for the three months ended September 30, 1999 to $3.2 million for
the three months ended September 30, 2000. The average volume of interest
bearing deposits increased by $10.9 million or 5.3%, from $206.0 million for
the three months ended September 30, 1999 to $216.9 million for the three
months ended September 30, 2000. The annualized rate increased by 64 basis
points, from 4.5% to 5.1% for the three months ended September 30, 1999 and
2000, respectively. The average volume on borrowed funds decreased $29.9
million, or 52.8%, from $56.6 million for the three months ended September
30, 1999 to $26.7 million for the three months ended September 30, 2000. The
annualized rate on borrowed funds increased 78 basis points, from 5.7% to
6.5% for the three months ended September 30, 1999 and 2000, respectively.
Interest expense increased by $167,000 or 1.8%, from $9.2 million for the
nine months ended September 30, 1999 to $9.4 million for the nine months
ended September 30, 2000. The increase is primarily the result of increasing
rates. The average volume of interest bearing deposits increased by $114,000
or 0.1%, from $214.4 million for the nine months ended September 30, 1999 to
$214.5 million for the nine months ended September 30, 2000. The annualized
rate increased 45 basis points, from 4.4% to 4.9% for the nine months ended
September 30, 1999 and 2000, respectively. The average volume on borrowed
funds decreased by $16.0 million, or 31.7%, from $50.4 million for the nine
months ended September 30, 1999 to $34.4 million for the nine months ended
September 30, 2000. The annualized rate on borrowed funds increased 48 basis
points, from 5.6% to 6.1% for the nine months ended September 30, 1999 and
2000, respectively.
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PROVISION FOR LOAN LOSSES. The Company established provisions for loan
losses of $2.0 million and $211,000 for the three months ended September 30,
2000 and 1999, respectively. Of the $2.0 million, $1.5 million was for a
commercial loan charge off which involved a customer who was indicted by the
United States for alleged involvement in a Ponzi scheme. The assets which
the U.S. Department of Justice has attempted to seize included commercial
real estate, vehicles and inventory that were pledged. The Company and its
attorneys are working with the federal prosecutor in locating, securing and
liquidating the assets used to secure the loans. The projected recovery of
any part of the charged off loan is undeterminable at this time. 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
identifying a need to add to the reserves.
The Company established provisions for loan losses of $2.5 million and
$477,000 for the nine months ended September 30, 2000 and 1999,
respectively. Of the $2.5 million, $1.5 million was for a commercial loan
charge off which involved a customer who was indicted by the United States
for his alleged involvement in a Ponzi scheme. The assets seized by the
U.S. Department of Justice included commercial real estate, vehicles and
inventory that were pledged as security for a commercial loan. The Company
and its attorneys are working with the federal prosecutor in locating,
securing and liquidating the assets used to secure the loan. The projected
recovery of any part of the charged off loan is undeterminable at this time.
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 identifying a need to add to the reserves.
NONINTEREST INCOME. Noninterest income increased by $71,000, or 14.4%, from
$493,000 for the three months ended September 30, 1999 to $564,000 for the
three months ended September 30, 2000. Of the increase, $21,000 was due to
an increase in service fees from $391,000 for the three months ended
September 30, 1999 to $412,000 for the three months ended September 30,
2000.
Noninterest income increased by $174,000, or 11.6%, from $1.5 million for
the nine months ended September 30, 1999 to $1.7 million for the nine months
ended September 30, 2000. Of the increase, $101,000 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 increased by $217,000, or 10.3%,
from $2.1 million for the three months ended September 30, 1999 to $2.3
million for the three months ended September 30, 2000. Of the increase,
professional fees increased $142,000, or 346.3%, from $41,000 for the three
months ended September 30, 1999 to $183,000 for the three months ended
September 30, 2000. The increase was primarily due to a non-recurring
pre-tax charge of $80,000 to defend the company's position in a proxy
contest.
Noninterest expense increased by $183,000, or 2.7%, from $6.8 million for
the nine months ended September 30, 1999 to $7.0 million for the nine months
ended September 30, 2000. The increase was primarily due to professional
fees increasing $377,000, or 154.5%, from $244,000 for the nine months ended
September 30, 1999 to $621,000 for the nine months ended September 30, 2000.
Of the increase, a non-recurring pre-tax charge of $242,000 was incurred to
defend the Company's position in a proxy contest. The Company experienced
cost reductions in compensation and benefits of $95,000, or 2.9%, data
processing of $22,000, or 4.8% and supplies of $45,000, or 20.2%.
INCOME TAX EXPENSE (BENEFIT). The Company's income tax expense (benefit) was
estimated at ($448,000) and $222,000 with an effective tax rate of 31.4% and
37.7 % for the three months ended September 30, 2000 and 1999, respectively.
For the nine months ended September 30, 2000 and 1999, income taxes were
estimated to be ($242,000) and $390,000, with an effective tax rate of 31.0%
and 32.0 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 unpledged investment securities and mortgage-
backed and related securities with an aggregate market value of $40.8
million at September 30, 2000 classified as available for sale. Another
source of liquidity is the Bank's ability to obtain advances from the FHLB
of Chicago. The Company maintains a portion of its investments in interest-
bearing deposits held at other financial institutions. In addition, the
Company has pre-established lines of credit with 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 September 30, 2000,
the Company's ratios of Tier 1 capital to average total assets was 10.8%, as
compared to the required level of 4.0%, respectively. The risk-based capital
ratio at that date was 19.4%, as compared to the requirement of 8.0%.
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PART II. OTHER INFORMATION
-----------------
ITEM 1. LEGAL PROCEEDINGS
Stuart Chris Engel, an established customer (since March 1999), was
indicted in the central district of Illinois in criminal case number
00-20046 on August 18, 2000 for his alleged involvement in a conspiracy
to commit mail fraud, wire fraud, money laundering, and conducting
financial transactions with the proceeds of illegal activity. In Count
21 of the indictment, as a result of the preceding criminal charges,
the U. S. seeks to forfeit any and all interests the 19 named
co-conspirators may have individually and or in association with each
other, or others, in and to all properties, real and personal, involved
in the aforestated offenses and property traceable to such property
equal to at least $12,500,000. The assets of Engel attempted to be
seized by the U. S. Department of Justice includes his commercial and
personal real estate, vehicles, equipment, and inventory. The Company
and its attorneys are working with the federal prosecutor in locating,
securing, and liquidating the assets of Engel used to perfect his
loans. The projected recovery of any part of the charged-off loans is
undeterminable at this time.
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
(b) Reports on Form 8-K
On October 4, 2000, the registrant filed a Current Report on Form
8-k to file as an exhibit a copy of a press release announcing:
1.) Receipt of indications of interest to purchase one or
more of the Registrant's subsidiary banks.
2.) A loan customer of the Registrant had been indicted by a
federal grand jury in an investment scheme
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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: November 11, 2000 /s/ Wayne H. Benson
------------------------------------------
Wayne H. Benson
(Chief Executive Officer)
Date: November 11, 2000 /s/ Douglas W. Tompson
------------------------------------------
Douglas W. Tompson
(Principal Financial Officer)
14
