Item 1. Business
General
Community Financial Corporation ("Community" or the "Company") is a Virginia corporation, which owns Community Bank (the "Bank" or "Community Bank"). The Bank was organized in 1928 as a Virginia-chartered building and loan association, converted to a federally-chartered savings and loan association in 1955 and to a federally-chartered savings bank in 1983. In 1988, Community Bank converted to the stock form of organization through the sale and issuance of shares of our common stock. References throughout this Form 10-K to the Company generally include the Bank, unless the context otherwise requires. Our principal asset is the outstanding stock of Community Bank, our wholly owned subsidiary. Our common stock trades on The Nasdaq Stock Market under the symbol "CFFC." In November, 1997 Community Bank established Community First Mortgage Corporation ("Community First"), a wholly owned mortgage banking subsidiary to originate and sell mortgage loans. Community First was sold on June 30, 2003.
Community and Community Bank are subject to comprehensive regulation, examination and supervision by the Office of Thrift Supervision, Department of the Treasury ("OTS") and by the Federal Deposit Insurance Corporation ("FDIC"). The Bank is a member of the Federal Home Loan Bank ("FHLB") System and our deposits are backed by the full faith and credit of the United States Government and are insured by the Savings Association Insurance Fund ("SAIF") to the maximum extent permitted by the FDIC. At March 31, 2005, Community had $399.6 million in assets, deposits of $275.4 million and stockholders' equity of $31.3 million. Community's primary business consists of attracting deposits from the general public and originating real estate loans and other types of investments through our offices located in Staunton, Waynesboro, Stuart Drafts, Raphine, Verona and Virginia Beach, Virginia.
Like all financial institutions, Community's operations are materially affected by general economic conditions, the monetary and fiscal policies of the federal government and the policies of the various regulatory authorities, including the OTS and the Board of Governors of the Federal Reserve System ("Federal Reserve Board"). Our results of operations are largely dependent upon our net interest income, which is the difference between the interest we receive on our loan portfolio and our investment securities portfolio, and the interest we pay on our deposit accounts and borrowings.
Our main office is located at 38 North Central Avenue, Staunton, Virginia 24401. Our telephone number is (540) 886-0796.
Forward-Looking Statements
This document, including information incorporated by reference, contains, and future filings by the Company on Form 10-Q and Form 8-K and future oral and written statements by the Company and its management may contain, forward-looking statements about the Company and its subsidiary which we believe are within the meaning of the Private Securities
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Litigation Reform Act of 1995. These forward-looking statements include, without limitation, statements with respect to anticipated future operating and financial performance, including revenue creation, lending origination, operating efficiencies, loan sales, charge-offs and loan loss provisions, growth opportunities, interest rates, acquisition and divestiture opportunities, and synergies, efficiencies, cost savings and funding advantages. These forward-looking statements are based on currently available competitive, financial and economic data and management's views and assumptions regarding future events. These forward-looking statements are inherently uncertain, and investors must recognize that actual results may differ from those expressed or implied in the forward-looking statements. Accordingly, Community Financial Corporation cautions readers not to place undue reliance on any forward-looking statements.
Words such as may, could, should, would, believe, anticipate, estimate, expect, intend, plan and similar expressions are intended to identify these forward-looking statements. The important factors discussed below, as well as other factors discussed elsewhere in this document and factors identified in our filings with the Securities and Exchange Commission and those presented elsewhere by our management from time to time, could cause actual results to differ materially from those indicated by the forward-looking statements made in this document. Among the factors that could cause our actual results to differ from the these forward-looking statements are:
the strength of the United States economy in general and the strength of the local economies in which we conduct our operations; general economic conditions, either nationally or regionally, may be less favorable than expected, resulting in, among other things, a deterioration in the credit quality of our loans and other assets;
the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board;
financial market, monetary and interest rate fluctuations, particularly the relative relationship of short-term interest rates to long-term interest rates;
the timely development of and acceptance of new products and services of Community Financial Corporation and Community Bank, and the perceived overall value of these products and services by users, including the features, pricing and quality compared to competitors' products and services;
the impact of changes in financial services laws and regulations (including laws concerning taxes, accounting standards, banking, securities and insurance); legislative or regulatory changes may adversely affect the business in which we are engaged;
the impact of technological changes;
changes in consumer spending and saving habits; and
our success at managing the risks involved in the foregoing.
Community Financial Corporation disclaims any obligation to update or revise any forward-looking statements based on the occurrence of future events, the receipt of new information, or otherwise.
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Lending Activities
General. We, like most other thrift institutions, concentrate our lending activities on first mortgage conventional loans secured by residential and, to a lesser extent, commercial and multi-family real estate with an emphasis on multi-family housing. We make construction loans secured by commercial and multi-family real estate and one-to four-family residential properties. Additionally, we make consumer loans in order to increase the diversification and decrease the interest rate sensitivity of our loan portfolio, and to increase interest income as these loans typically carry higher interest rates than mortgage loans. Substantially all of our loans are originated within our market area which includes Shenandoah, Rockingham, Page, Highland, Augusta, Albemarle, Bath, Rockbridge and Nelson Counties, and the Hampton Roads area in Virginia.
Residential loan originations come primarily from walk-in customers, real estate brokers and builders. Commercial and multi-family real estate loan originations are obtained through broker referrals, direct solicitation of developers and continued business from customers. All completed loan applications are reviewed by our salaried loan officers. As part of the application process, information is obtained concerning the income, financial condition, employment and credit history of the applicant. If commercial or multi-family real estate is involved, information is also obtained concerning cash flow after debt service. The quality of loans is analyzed based on our experience and on guidelines with respect to credit underwriting as well as the guidelines issued by Freddie Mac and Fannie Mae and other purchasers of loans, depending on the type of loans involved. The one-to four-family, adjustable-rate mortgage loans originated by us, however, are not readily saleable in the secondary market due to the fact that we do not typically require surveys, title insurance or written verifications of employment history and deposit relationships. All real estate is appraised by independent fee appraisers who have been pre-approved by the Board of Directors.
Our loan commitments are approved at different levels, depending on the size and type of the loan being sought. The Board of Directors has authorized loan limits for individual loan officers depending on the types of loans being approved. One-to four-family real estate loans not exceeding $350,000 and commercial and multi-family real estate loans not exceeding $225,000 or less may be approved by the President of the Bank. All mortgage loans in excess of $950,000 must be approved by the Board of Directors. Consumer loans in excess of $175,000 on a secured basis and $50,000 on an unsecured basis require the approval of three members of senior management. Loans in excess of individual loan officer or collective senior management loan authority but less than $950,000 must be approved by a majority of our Loan Committee. Regardless of the individual loan approval authority, the Board of Directors generally approves or ratifies all loans.
The aggregate amount of loans that the Bank is permitted to make to any one borrower, including related entities, and the aggregate amount that the Bank may invest in any one real estate project, with certain exceptions, is limited to the greater of 15% of unimpaired capital and surplus or $500,000. At March 31, 2005, the maximum amount which the Bank could have loaned to one borrower and the borrower's related entities or invested in any one project was approximately $4.8 million. At March 31, 2005, the Bank had no borrower, or groups of borrowers, with loans outstanding in excess of $3.3 million. The bank had only four borrowers, or groups of related borrowers, with an aggregate outstanding loan balance at March 31, 2005, in excess of $3.0 million, all of which loans are performing in accordance to their payment terms.
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Loan Portfolio Composition. The following table sets forth the composition of our total loan portfolio in dollars and percentages as of the dates indicated.
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The following table shows the composition of our loan portfolio by fixed and adjustable-rate, at the dates indicated.
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(1) 	Includes residential real estate construction loans of $0, $643,000, $840,000, $295,000, and $297,000, and commercial and multi-family real estate construction loans of $0, $0, $0, $0, and $680,000, at March 31, 2005, 2004, 2003, 2002, and 2001, respectively.
(2) 	Includes residential real estate construction loans of $33.1, $22.7 million, $23.7 million, $25.1 million, and $20.4 million, and commercial and multi-family real estate construction loans of $1.9, $2.0 million, $530,000, $1.2 million, and $2.2 million, at March 31, 2005, 2004, 2003, 2002 and 2001 respectively. Loan Maturity and Repricing
The following schedule illustrates the contractual maturity of our real estate construction and commercial business loan portfolios as of March 31, 2005, before net items. Loans that have adjustable or renegotiable interest rates are shown as maturing in the period during which the contract is due. The schedule does not reflect the effects of possible prepayments or enforcement of due-on-sale clauses.
The total amount of loans in the above table due after March 31, 2006, which have fixed interest rates is $9.8 million, while the total amount of loans due after such date which have floating or adjustable interest rates is $4.3 million.
One-to Four-Family Residential Real Estate Lending
Our primary lending program is the origination of loans secured by one- to four-family residences, substantially all of which are located in our market areas. We evaluate both the borrower's ability to make principal and interest payments and the value of the property that will secure the loan. Although federal law permits us to make loans in amounts of up to 100% of the appraised value of the underlying real estate, we generally make one-to four-family residential real estate loans in amounts of 80% or less of the appraised value. In certain instances, we will lend up to 90% of the appraised value of the underlying real estate and require the borrower to purchase private mortgage insurance in an amount sufficient to reduce our exposure to 80% or less.
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In order to reduce our exposure to changes in interest rates, we originate a limited amount of 30-year or 15-year fixed-rate, one-to four-family residential mortgage loans for our portfolio. For the year ended March 31, 2005, 70.8% of all one-to four-family residential loans we originated had adjustable interest rates. At March 31, 2005, $34.1 million or 9.7%, of our total loans receivable, before net items, consisted of fixed-rate mortgage loans.
To compete with other lenders in our market area, we make one, three, five, seven and ten-year adjustable-rate mortgage ("ARM") loans at interest rates which, for the initial period, may be below the index rate which would otherwise apply to these loans. Borrowers are qualified, however, at the fully indexed interest rate. Our one-to four-family residential ARM loans primarily have interest rates that adjust annually, based on a stated interest margin over the yields on one year U.S. Treasury Bills. Although our one- to four-family ARM loans primarily adjust annually after the initial period, we offer a residential ARM loan which adjusts every three or five years generally in accordance with the rates based on a stated margin over the yields on one or three year U.S. Treasury Bills. Our ARM loans generally limit interest rate increases to 2% each rate adjustment period and have an established ceiling rate at the time the loans are made of up to 6% over the original interest rate. At March 31, 2005, residential ARM loans totaled $122.2 million, or 34.6%, of our total loans receivable before net items. ARM loans generally pose different credit risks than fixed-rate loans primarily because during periods of rising interest rates, the risk of defaults on ARM loans may increase due to the upward adjustment of interest costs to borrowers.
All one-to four-family real estate mortgage loans being originated by us contain a "due-on-sale" clause providing that we may declare the unpaid principal balance due and payable upon the sale of the mortgaged property. It is our policy to enforce these due-on-sale clauses concerning fixed-rated loans and to permit assumptions of ARM loans, for a fee, by qualified borrowers.
We require, in connection with the origination of residential real estate loans, title opinions and fire and casualty insurance coverage, as well as flood insurance where appropriate, to protect our interests. The cost of this insurance coverage is paid by the borrower. We generally do not require escrows for taxes and insurance.
Commercial and Multi-Family Real Estate, and Construction Lending
We have originated and, in the past have purchased, commercial real estate loans and loan participations. We also make commercial and residential real estate construction loans. Our commercial real estate and construction loans are secured by various types of commercial real estate, including multi-family residential buildings, hotels and motels, convenience stores, commercial and industrial buildings, shopping centers and churches. We have in recent years placed more emphasis on multi-family housing loans for our commercial real estate loan portfolio. At March 31, 2005, commercial real estate, land and construction loans aggregated $130.7 million or 37.1% of our total loans receivable before net items. Our commercial real estate and construction loans are secured primarily by properties located in our market area.
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Our commercial real estate loans are generally made at interest rates that adjust based on yields for one-year U.S. Treasury securities, with a 2% annual cap on rate adjustments and a 6% cap on interest rates over the life of the loan. Typically, we charge origination fees ranging from 1% to 2% on these loans. At March 31, 2005, we had $12.3 million in fixed-rate commercial real estate and construction loans. Commercial real estate loans made by us are fully amortizing with maturities ranging from five to 30 years.
At March 31, 2005, we had $1.9 million or 0.53% of our total loans receivable before net items invested in commercial construction loans compared to $2.0 million or 0.68% at March 31, 2004. At March 31, 2005, we had three commercial construction loans, the largest one having an outstanding balance of $551,921. These three loans are presently performing in accordance with their terms. Our commercial construction loans are generally made for a one year term or less, with a requirement that the borrower have a commitment for permanent financing prior to funding the construction loan. Our construction loans generally provide for a fixed rate of interest at the prevailing prime rate or slightly above. Such loans are generally secured by the personal guarantees of the borrowers and by first mortgages on the projects.
The Bank makes construction loans to individuals for the construction of their residences as well as to builders and developers for the construction of one-to four-family residences and the development of one-to-four family lots in Virginia. These construction loans are generally for a term of twelve months or less with interest only due monthly. Construction loans are generally made with permanent financing to be provided by the Bank, although not required. Construction loans to builders may be made on a basis where a buyer has contracted to buy the house or the construction may be on a speculative basis. Limits are set by the Bank as to the number of each type of construction loan for each builder, whether speculative or pre-sold, dependent on the determination made by the Bank during the underwriting process.
In our underwriting of commercial real estate and construction loans, we may lend, under federal regulations, up to 100% of the security property's appraised value, although the loan to original appraised value ratio on such properties is generally 80% or less. Our commercial real estate and construction loan underwriting requires an examination of debt service coverage ratios, the borrower's creditworthiness and prior credit history and reputation, and we generally require personal guarantees or endorsements of borrowers. We also carefully consider the location of the security property. At March 31, 2005, we had $33.1 million or 9.4% of our total loans receivable in residential construction loans compared to $23.3 or 8.0% at March 31, 2004.
The Company originates loans to local real estate developers with whom it has established relationships for the purpose of developing residential subdivisions (i.e., installing roads, sewers, water and other utilities), as well as loans to individuals to purchase building lots. Land development loans are secured by a lien on the property and made for a period usually not to exceed twelve months with an interest rate that adjusts with the prime rate, and are made with loan-to-value ratios not exceeding 80%. Monthly interest payments are required during the term of the loan. Subdivision loans are structured so that the Company is repaid in full upon the sale by the borrower of approximately 90% of the subdivision lots.
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All of the Company's land loans are secured by property located in its primary market area. In addition, the Company also generally obtains personal guarantees from financially capable parties based on a review of personal financial statements. Raw land loans increased from $7.1 million at March 31, 2004 to $18.7 million at March 31, 2005 due primarily to the employment of additional loan officers and the increased development activity in the Bank's market areas. At March 31, 2005, the largest outstanding land loan was $2.0 million and was performing according to it's original terms. Loans secured by undeveloped land or improved lots involve greater risks than one- to four- family residential mortgage loans because these loans are advanced upon the predicted future value of the developed property. If the estimate of the future value proves to be inaccurate, in the event of default and foreclosure, the Company may be confronted with a property the value of which is insufficient to assure full repayment. Loans on raw land may run the risk of adverse zoning changes, environmental or other restrictions on future use.
During fiscal 2005 lending rates increased. The Bank was actively pursuing commercial real estate loans while borrowers were seeking funding secured by commercial real estate. In a rising rate environment the volume of loans is likely to decline due to borrowers unwillingness to seek funding at higher interest rates.
At March 31, 2005, we had 47 commercial real estate loans (or multiple loans to one borrower) in excess of $1.0 million with an aggregate balance of $97.6 million. The largest relationship was to a single borrower for $3.3 million secured by a combination of single family construction loans.
The following table presents information as to the Company's commercial real estate and construction lending portfolio as of March 31, 2005 by type of project.
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Commercial real estate and construction lending is generally considered to involve a higher level of credit risk than one-to four-family residential lending due to the concentration of principal in a limited number of loans and borrowers and the effects of general economic conditions on real estate developers and managers. Our risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the property's sale value upon completion of the project and the estimated cost of the project. If the estimated cost of construction or development proves to be inaccurate, we may be required to advance funds beyond the amount originally committed to permit completion of the project. If the estimate of value proves to be inaccurate, we may be confronted, at or prior to the maturity of the loan, with a project with value which is insufficient to assure full repayment. Because we usually provide loans to a developer for the entire estimated cost and interest of the project, defaults in repayment generally do not occur during the construction period and it is therefore difficult to identify problem loans at an early stage. When loan payments become due, borrowers may experience cash flow from the project which is not adequate to service total debt. This cash flow shortage can result in the failure to make loan payments. In such cases, we may be compelled to modify the terms of the loan. In addition, the nature of these loans is such that they are generally less predictable and more difficult to evaluate and monitor.
Consumer Lending
We offer various secured and unsecured consumer loans, including unsecured personal loans, automobile loans, deposit account loans, installment and demand loans, and home equity loans. At March 31, 2005, we had $68.7 million or 19.5% of our total loans receivable before net items invested in consumer loans. With the exception of $13.6 million of home equity loans at March 31, 2005, our consumer loans primarily have fixed interest rates and generally have terms ranging from 90 days to five years. The largest component of consumer loans are automobile loans. The balance of automobile loans receivable has increased from $19.2 million for fiscal 2003 to $31.3 million for fiscal 2004 and to $44.1 million at March 31, 2005. The increase in automobile loans is attributable to indirect lending relationships with automobile dealerships in our lending areas. The automobile loans are generally evenly divided between new and used automobiles. The automobile loans are primarily without recourse to the dealer but the Bank may require either full or partial recourse to the dealer under certain circumstances. If the customer's credit history or the loan to value of the vehicle warrants, the Bank may require full or partial recourse to the dealer. We originate all of our consumer loans in our market area and intend to continue our consumer lending in this geographic area.
We offer VISA credit card accounts. We presently charge no annual membership fee and an annual rate of interest of 15.96%. At March 31, 2005, 1,091 credit card accounts had been issued, with an aggregate outstanding balance of $409,000 and unused credit available of $3.3 million. The total unused credit available under our home equity loans was $14.1 million at March 31, 2005. Consumer loans do not include unused lines of credit on our credit card accounts and home equity lines.
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The underwriting standards employed by us for consumer loans include a determination of the applicant's payment history on other debts and an assessment of ability to meet existing obligations and payments on the proposed loan. The stability of the applicant's monthly income may be determined by verification of gross monthly income from primary employment, and additionally from any verifiable secondary income. Although creditworthiness of the applicant is of primary consideration, the underwriting process also includes a comparison of the value of the security in relation to the proposed loan amount.
Consumer loans may entail greater risk than do residential mortgage loans, particularly in the case of consumer loans which are unsecured, such as credit card receivables, or secured by rapidly depreciable assets such as automobiles. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation. The remaining deficiency often does not warrant further substantial collection efforts against the borrower. In addition, consumer loan collections are dependent on the borrower's continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans. Such loans may also give rise to claims and defenses by a consumer loan borrower against an assignee of such loan such as us, and a borrower may be able to assert against such assignee claims and defenses which it has against the seller of the underlying collateral. We add general provisions to our loan loss allowance, in amounts determined in accordance with industry standards, at the time the loans are originated. Consumer loan delinquencies often increase over time as the loans age. Accordingly, although the level of non-performing assets in our consumer loan portfolio has generally been low ($44,000 at March 31, 2005), there can be no assurance that delinquencies will not increase in the future.
Commercial Business Lending
We also originate commercial business loans. At March 31, 2005, we had $30.2 million in commercial business loans outstanding, representing 8.6% of our total loans receivable, before net items. We offer commercial business loans to service existing customers, to consolidate our banking relationships with these customers, and to further our asset/liability management goals.
Unlike residential mortgage loans which generally are made on the basis of the borrower's ability to make repayment from his or her employment and other income, and which are secured by real property whose value tends to be more easily ascertainable, commercial business loans are of higher risk and typically are made on the basis of the borrower's ability to make repayment from the cash flow of the borrower's business. As a result, the availability of funds for the repayment of commercial business loans may be dependent upon the success of the business itself. Our commercial business loans almost always include personal guarantees and are usually, but not always, secured by business assets. However, the collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business. Collateral securing the loans include but are not limited to business automobiles, equipment and accounts receivable.
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We recognize the generally increased credit risk associated with commercial business lending. Our commercial business lending practice emphasizes credit file documentation and analysis of the borrower's character, management capabilities, capacity to repay the loan, the adequacy of the borrower's capital and collateral. An analysis of the borrower's past, present and future cash flows is also an important aspect of our credit analysis.
Loan Originations, Purchases and Sales
Federal regulations authorize us to make real estate loans anywhere in the United States. However, at March 31, 2005, substantially all of our real estate loans were secured by real estate located in our market area.
Until the sale of our mortgage banking subsidiary in June, 2003, we originated fixed-rate residential mortgage loans in our mortgage banking subsidiary for sale in the secondary market and retained mortgage loans originated by Community Bank for our portfolio. Prior to fiscal 1997 we retained the servicing for mortgage loans sold. During fiscal 1997 we began to sell loans with servicing released to be more competitive in that market.
We have not purchased any loans during the last three fiscal years. Management believes that purchases of loans and loan participations are generally desirable only when local mortgage demand is less than the supply of funds available for local mortgage origination.
The following table shows our loan origination, purchase, sale and repayment activities for the periods indicated.
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During fiscal 2003 and 2004 all real estate loan sales were related to our former mortgage banking subsidiary which was sold in June 30, 2003. All loans originated by our former mortgage banking subsidiary were originated for sale while substantially all other loans were originated by Community Bank and were retained in our portfolio.
Delinquent and Problem Loans
When a borrower fails to make a required payment on a loan, we attempt to cause the deficiency to be cured by contacting the borrower. A notice is mailed to the borrower after a payment is 15 days past due and again when the loan is 30 days past due. For most loans, if the delinquency is not cured within 30 days we issue a notice of intent to foreclose on the property and if the delinquency is not cured within 60 days, we may institute foreclosure action. If foreclosed on, real property is sold at a public sale and may be purchased by us. Historically, deficiencies have been cured promptly.
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The following table sets forth information concerning delinquent mortgage and other loans at March 31, 2005. The amounts presented represent the total remaining principal balances of the related loans, rather than the actual payment amounts which are overdue.
Federal regulations provide for the classification of loans, debt, equity securities and other assets considered to be of lesser quality as "substandard," "doubtful" or "loss" assets. The regulations require insured institutions to classify their own assets and to establish prudent general allowances for losses for assets classified "substandard" or "doubtful." For the portion of assets classified as "loss," an institution is required to either establish specific allowances of 100% of the amount classified or charge such amount off its books. Assets which do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess potential weaknesses are required to be designated "special mention" by management. In addition, the OTS may require the establishment of a general allowance for losses based on assets classified as "substandard" and "doubtful" or based on the general quality of the asset portfolio of an institution. In connection with the filing of our periodic reports with the OTS and in accordance with our classification of assets policy, we regularly review the loans in our portfolio to determine whether any loans require classification in accordance with applicable regulations.
On the basis of management's review of our assets, at March 31, 2005, we had classified $1,881,000 of our assets as substandard, none as doubtful and none as loss. The $1,881,000 in classified loans is comprised primarily of residential and commercial real estate loans, which includes one combination multi-family and commercial real estate loan of $1.1 million. In addition, $2.7 million of loans have been designated as special mention.
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Non-Performing Assets
The table below sets forth the amounts and categories of non-performing assets in our loan portfolio. Non-performing assets include non-accruing loans, accruing loans delinquent 90 days or more as to principal or interest payments and real estate acquired through foreclosure, which include assets acquired in settlement of loans. Typically, a loan becomes nonaccruing when it is 90 days delinquent. All consumer loans more than 120 days delinquent are charged against the consumer loan allowance for loan losses. Accruing mortgage loans delinquent more than 90 days are loans that we consider to be well secured and in the process of collection. For the years presented, we have no accruing loans 90 days or more delinquent and no troubled debt restructurings (which involve forgiving a portion of interest or principal on any loans or making loans at a rate materially less than that of market rates).
Non-performing assets at March 31, 2005 were comprised primarily of repossessed automobiles and loans delinquent 90 days or more. Based on current market values of the properties securing these loans, management anticipates no significant losses in excess of the reserves for losses previously recorded.
Nonaccrual loans amounted to $408,873 at March 31, 2005. If interest on these loans had been accrued, such income would have approximated $8,000 for the year ended March 31, 2005, none of which is included in interest income.
Other Loans Of Concern
As of March 31, 2005, there were $4.0 million in loans with respect to which known information about the possible credit problems of the borrowers or the cash flows of the security properties have caused management to have doubts as to the ability of the borrowers to comply with present loan repayment terms and which may result in the future inclusion of such items in the non-performing asset categories.
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The $4.0 million in other loans of concern is comprised primarily of commercial real estate loans, which includes one combination commercial real estate and multi-family loan in the amount of $1.1 million. This loan was current as to interest and principal payments as of March 31, 2005.
Although management believes that these loans are adequately secured and no material loss is expected, certain circumstances may cause the borrower to be unable to comply with the present loan repayment terms at some future date.
Allowance for Losses on Loans and Real Estate
We provide valuation allowances for anticipated losses on loans and real estate when management determines that a significant decline in the value of the collateral has occurred, as a result of which the value of the collateral is less than the amount of the unpaid principal of the related loan plus estimated costs of acquisition and sale. In addition, we also provide allowances based on the dollar amount and type of collateral securing our loans in order to protect against unanticipated losses. Although management believes that it uses the best information available to make such determinations, future adjustments to allowances may be necessary, and net income could be significantly affected, if circumstances differ substantially from the assumptions used in making the initial determinations. During fiscal 2005, our net increase in allowance for losses on loans was $375,000, due primarily to a $57.5 million net increase in loans. At March 31, 2005, we had an allowance for loan losses of $3,021,000. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Provision for Loan Losses". The following table sets forth an analysis of our allowance for loan losses.
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The distribution of the allowance for losses on loans at the dates indicated is summarized as follows:
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Subsidiary Activities
We established Community First Mortgage Corporation, a mortgage banking subsidiary, in November 1997, began operations in May 31, 1998 and sold the subsidiary in June 2003. The primary business of Community First was to originate fixed-rate mortgage loans to sell to third party investors to generate fee income and gains on the sale of mortgage loans. The success of a mortgage banking operation such as Community First is generally dependent on increasing the volume of mortgage loans originated and sold to investors.
Investment Activities
As a member of the FHLB System, Community Bank must maintain minimum levels of investments that qualify as liquid assets to meet the safety and soundness requirements under OTS regulations. Liquidity may increase or decrease depending upon the availability of funds and comparative yields on investments in relation to the return on loans.
Historically, we have maintained our liquid assets at a level believed adequate to meet requirements of normal daily activities, repayment of maturing debt and potential deposit outflows. Cash flow projections are regularly reviewed and updated to assure that adequate liquidity is maintained. As of March 31, 2005, the Bank's liquidity ratio (liquid assets as a percentage of net withdrawable savings and current borrowings) was 5.3%.
The contractual maturities and weighted average yields of the investment securities portfolio, excluding FHLB of Atlanta stock and Freddie Mac stock, are indicated in the following table.
(1) The weighted average yield is not computed on a tax equivalent basis. Included in the above table are $22.5 million of securities that are callable in three years or less.
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The following table sets forth the composition of our available for sale and held to maturity securities portfolios at the dates indicated.
(1) Excludes Freddie Mac common stock and other marketable equity securities.
During fiscal 2005, the market rates paid on investment securities increased. During fiscal 2005, we invested primarily in federal and state agency securities with maturities of one to five years, some of which are callable within three months to three years from date of purchase.
Sources of Funds
General. Deposits have traditionally been the principal source of our funds for use in lending and for other general business purposes. In addition to deposits, we derive funds from loan repayments, cash flows generated from operations, which includes interest credited to deposit accounts, repurchase agreements entered into with commercial banks and FHLB of Atlanta advances.
Contractual loan payments are a relatively stable source of funds, while deposit inflows and outflows and the related cost of such funds have varied widely. Borrowings may be used on a short-term basis to compensate for reductions in deposits or deposit inflows at less than projected levels and may be used on a longer-term basis to support expanded lending activities.
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Deposits. We attract both short-term and long-term deposits from the general public by offering a wide assortment of accounts and rates. We have been required by market conditions to rely on short-term accounts and other deposit alternatives that are more responsive to market interest rates than fixed interest rate, fixed-term certificates that were our primary source of deposits in the past. We offer regular passbook accounts, checking accounts, various money market accounts, fixed-rate long-term certificates with varying maturities, $100,000 or more jumbo certificates of deposit and individual retirement accounts. Certain of our jumbo certificates which have matured revert to a passbook rate and are reflected in the tables as passbook accounts. We do not solicit brokered deposits due to our ability historically to attract funds from our local markets or borrow from the FHLB at lower rates.
The following table sets forth the dollar amount of savings deposits in the various types of deposit programs offered by us at the periods indicated.
The variety of deposit accounts we offer has allowed us to be competitive in obtaining funds and has allowed us to respond with flexibility (by paying rates of interest more closely approximating market rates of interest) to, although not eliminate the threat of, disintermediation (the flow of funds away from depository institutions such as thrift institutions into direct investment vehicles such as government and corporate securities). In addition, we have become much more subject to short-term fluctuations in deposit flows, as customers have become more interest rate conscious. Our ability to attract and maintain deposits, and our cost of funds, has been, and will continue to be, significantly affected by money market conditions.
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The following table sets forth our deposit flows during the periods indicated.
During the fiscal years ended March 31, 2004 and 2003, we emphasized free checking accounts, offered a more competitive rate on savings accounts and remained competitive in regard to the rates offered by competitors. During fiscal 2005 market interest rates increased and contributed to a decrease in savings and money market accounts. The change in deposits is related primarily to rising interest rates and customers preference for higher rate time deposits. We remained competitive on deposit rates and in particular on time deposits. Due to these efforts we experienced an increase in both non-interest bearing demand and time deposits during fiscal 2005. We may use borrowings from time to time as an alternative source of funds. See "- Borrowings."
The following table contains information pertaining to the average amount of and the average rate paid on each of the following deposit categories for the periods indicated.
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The following table shows rate information for our certificates of deposit as indicated.
The following table indicates the amount of the certificates of deposit by time remaining until maturity as of March 31, 2005.
Borrowings
As a member of the FHLB of Atlanta, we are required to own capital stock in the FHLB of Atlanta and are authorized to apply for advances from the FHLB of Atlanta. Each FHLB credit program has its own interest rate, which may be fixed or variable, and range of maturities. The FHLB of Atlanta may prescribe the acceptable uses to which these advances may be put, as well as limitations on the size of the advances and repayment provisions. Our borrowings, from time to time, also include securities sold under agreements to repurchase, with mortgage-backed securities or other securities pledged as collateral. The proceeds are utilized by us for general corporate purposes. At March 31, 2005, we had $15,650,497 of securities sold under agreements to repurchase which adjust with the federal funds rate. For additional information on our securities sold under agreements to repurchase, see Note 8 of the Notes to Consolidated Financial Statements contained in the Annual Report to Shareholders which is incorporated by reference in Part II, Item 8 of this report.
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We generally utilize borrowings to supplement deposits when they are available at a lower overall cost to us or they can be invested at a positive rate of return.
The following table sets forth information as to our borrowings and the weighted average interest rate paid on such borrowings at the dates indicated. For additional information on our borrowings, see Notes 7 and 8 of the Notes to Consolidated Financial Statements contained in the Annual Report to Shareholders which is incorporated by reference in Part II, Item 8 of this report.
Information related to short-term borrowing activity from the Federal Home Loan Bank is as follows:
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Competition
Community faces strong competition both in originating real estate loans and in attracting deposits. Competition in originating real estate loans comes primarily from other thrift institutions, commercial banks and mortgage bankers who also make loans secured by real estate located in our market area. We compete for real estate loans principally on the basis of our interest rates and loan fees, the types of loans and the quality of services provided to borrowers.
We face substantial competition in attracting deposits from other thrift institutions, commercial banks, money market and mutual funds, credit unions and other investment vehicles. Our ability to attract and retain deposits depends on our ability to provide an investment opportunity that satisfies the requirements of investors as to rate of return, liquidity, risk and other factors. We compete for these deposits by offering a variety of deposit accounts at competitive rates and convenient business hours.
We consider our primary markets for deposits to be Augusta County and Hampton Roads and for mortgage loans to be Augusta and Rockingham Counties and the Hampton Roads area. We estimate that our market share of savings deposits in Augusta County is approximately 10% and our share of mortgage loans in Augusta and Rockingham Counties is less than 10%. The opening of an office by the Bank in April, 1997 in Virginia Beach, Virginia expanded the Bank's market area to the Hampton Roads area of Virginia.
Regulation
General. Community Bank is a federally chartered financial institution, the deposits of which are federally insured. Accordingly, Community Bank is subject to broad federal regulation and oversight extending to all its operations. The Bank is a member of the FHLB of Atlanta and is subject to certain limited regulation by the Board of Governors of the Federal Reserve System ("Federal Reserve Board"). As the savings and loan holding company of Community Bank, Community Financial also is subject to federal regulation and oversight.
Certain of these regulatory requirements and restrictions are discussed below or elsewhere in this document.
Federal Regulation of Savings Associations. The OTS has extensive authority over the operations of savings associations. As part of this authority, we are required to file periodic reports with the OTS and we are subject to periodic examinations by the OTS. When an examination is conducted by the OTS, the examiners may require us to provide for higher general or specific loan loss reserves.
Regulatory Capital Requirements. Federally insured savings associations, such as Community Bank, are required to maintain a minimum level of regulatory capital. The OTS has established capital standards, including a tangible capital requirement, a leverage ratio (or core capital) requirement and a risk-based capital requirement applicable to such savings associations. These capital requirements must be generally as stringent as the comparable capital requirements for national banks. The OTS is also authorized to impose capital requirements in excess of these standards on individual associations on a case-by-case basis. See Note 11 of the Notes to Consolidated Financial Statements in our Annual Report to Stockholders which is incorporated by reference in Part II, Item 8 of this report for information on our regulatory capital levels and applicable OTS requirements.
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The OTS and the FDIC are authorized and, under certain circumstances required, to take certain actions against savings associations that fail to meet their capital requirements, which can impose limitations on the operations of the savings association.
Limitations on Dividends and Other Capital Distributions. OTS regulations impose various restrictions on savings associations with respect to their ability to make distributions of capital, which include dividends, stock redemptions or repurchases, cash-out mergers and other transactions charged to the capital account.
Generally, savings associations, such as Community Bank that are well capitalized before and after the proposed distribution meet their capital requirements, may make capital distributions during any calendar year equal to net income for the current year plus the previous two years net income, less capital distributions paid over that same period, subject to filing a prior notice with the OTS. However, an association deemed to be in need of more than normal supervision by the OTS may have its dividend authority restricted by the OTS. Community Bank may pay dividends in accordance with this general authority. In other circumstances, a savings association must file an application for prior approval and its ability to pay dividends may be restricted.
Qualified Thrift Lender Test. All savings associations, including Community Bank, are required to meet a qualified thrift lender ("QTL") test to avoid certain restrictions on their operations. This test requires a savings association to have at least 65% of its portfolio assets (as defined by regulation) in qualified thrift investments on a monthly average for nine out of every 12 months on a rolling basis. As an alternative, the savings association may maintain 60% of its assets in those assets specified in Section 7701(a)(19) of the Internal Revenue Code. Under either test, such assets primarily consist of residential housing related loans and investments. At March 31, 2005, Community Bank met the test and has always met the test since its effective date.
Any savings institution that fails to meet the QTL test must convert to a national bank, unless it requalifies as a QTL and thereafter remains a QTL. If an institution has not yet requalified or converted to a national bank, its new investments and activities are limited to those permissible for both a savings institution and a national bank, and it is limited to national bank branching rights in its home state. If the institution has not requalified or converted to a national bank within three years after the failure, it must sell all investments and stop all activities not permissible for a national bank. If any institution that fails the QTL test is controlled by a holding company, then within one year after the failure, the holding company must register as a bank holding company and become subject to all restrictions on bank holding companies. See"-Holding Company Regulation."
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Community Reinvestment Act. Under the Community Reinvestment Act ("CRA"), every FDIC insured institution has a continuing and affirmative obligation consistent with safe and sound banking practices to help meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA. The CRA requires the OTS, in connection with the examination of Community Bank, to assess the institution's record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications, such as a merger or the establishment of a branch, by Community Bank. An unsatisfactory rating may be used as the basis for the denial of an application by the OTS. Community Bank was examined for CRA compliance in January, 2005 and received a rating of "Satisfactory".
Holding Company Regulation. Community Financial is a unitary savings and loan holding company subject to regulatory oversight by the OTS. As such, we are required to register and file reports with the OTS and are subject to regulation and examination by the OTS. In addition, the OTS has enforcement authority over us and our non-savings association subsidiaries, which also permits the OTS to restrict or prohibit activities that are determined to be a serious risk to the subsidiary savings association.
As a unitary savings and loan holding company that acquired Community Bank before May 4, 1999, we generally are not subject to activity restrictions. If we acquire control of one or more savings associations as a separate subsidiary, our activities and those of any of our subsidiaries (other than Community Bank or any other SAIF-insured savings association) would become subject to such restrictions unless such other associations each qualify as a QTL and were acquired in a supervisory acquisition.
Federal and State Taxation
Federal Taxation. Savings associations such as Community Bank that meet certain definitional tests relating to the composition of assets and other conditions prescribed by the Internal Revenue Code of 1986, as amended (the "Code"), had been permitted to establish reserves for bad debts and to make annual additions thereto which could, within specified formula limits, be taken as a deduction in computing taxable income for federal income tax purposes. The amount of the bad debt reserve deduction for "non-qualifying loans" was computed under the experience method. The amount of the bad debt reserve deduction is now actual net charge-offs. As a result, the Bank must recapture as taxable income that portion of the reserve that exceeds the amount that could have been taken under the experience method for post- 1987 tax years. At March 31, 2005, Community Bank's had no excess reserves to be recaptured.
In addition to the regular income tax, corporations, including savings associations such as Community Bank, generally are subject to a minimum tax. An alternative minimum tax is imposed at a minimum tax rate of 20% on alternative minimum taxable income, which is the sum of a corporation's regular taxable income (with certain adjustments) and tax preference items, less any available exemption. The alternative minimum tax is imposed to the extent it exceeds the corporation's regular income tax and net operating losses can offset no more than 90% of alternative minimum taxable income.
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To the extent earnings appropriated to a savings association's bad debt reserves for "qualifying real property loans" and deducted for federal income tax purposes exceed the allowable amount of such reserves computed under the experience method and to the extent of the association's supplemental reserves for losses on loans ("Excess"), such Excess may not, without adverse tax consequences, be utilized for the payment of cash dividends or other distributions to a shareholder (including distributions on redemption, dissolution or liquidation) or for any other purpose (except to absorb bad debt losses).
Community Financial and Community Bank file consolidated federal income tax returns on a fiscal year basis. Savings associations, such as the Community Bank, that file federal income tax returns as part of a consolidated group are required by applicable Treasury regulations to reduce their taxable income for purposes of computing the percentage bad debt deduction for losses attributable to activities of the non-savings association members of the consolidated group that are functionally related to the activities of the savings association member.
Our federal income tax returns and our consolidated subsidiary for the last three years are open to possible audit by the Internal Revenue Service (the "IRS"). In the opinion of management, any examination of still open returns (including returns of subsidiaries and predecessors of, or entities merged into, Community Bank) would not result in a deficiency which could have a material adverse effect on the financial condition of Community Financial and our consolidated subsidiaries.
Virginia Taxation. We conduct our business in Virginia and consequently are subject to the Virginia corporate income tax. The Commonwealth of Virginia imposes a corporate income tax on a basis similar to federal income tax at a rate of 6% on Virginia taxable income.
Executive Officers
The following information as to the business experience during the past five years is supplied with respect to executive officers of Community Financial. Except as otherwise indicated, the persons named have served as officers of Community Financial since it became the holding company of Community Bank, and all offices and positions described below are also with Community Bank. There are no arrangements or understandings between the persons named and any other person pursuant to which such officers were selected.
P. Douglas Richard, age 61, is President and Chief Executive Officer of the Company. He was appointed in April, 2000 and was previously a Senior Vice President and Regional President of the Hampton Roads division. Prior to joining the Company, Mr. Richard was Chief Executive Officer of Seaboard Savings Bank in Virginia Beach, Virginia.
R. Jerry Giles, age 56, is our Chief Financial Officer and Senior Vice President. He was appointed in April 1994. Prior to joining the Company, Mr. Giles was a Certified Public Accountant in public accounting and the Chief Financial Officer with a savings bank for eleven years.
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Chris P. Kyriakides, age 42, is our Senior Vice President and Regional President, a position he has held since January, 1997. Prior to joining the Company, Mr. Kyriakides was Chief Operations Officer of Seaboard Savings Bank in Virginia Beach, Virginia.
Benny N. Werner, age 56, is our Senior Vice President of Retail Banking, a position he has held since May 1998. Prior to joining the Company, Mr. Werner was employed by Crestar for three years as President-Warrenton area and employed by Jefferson Savings and Loan, Warrenton, Virginia as Senior Vice President of Retail Banking for seventeen years.
Norman C. Smiley, III., age 43, is our Chief Lending Officer and Senior Vice President, a position he has held since November 2000. We have employed Mr. Smiley since April 1996. Prior to joining the Company, Mr. Smiley was a Branch Manager for First Virginia where he was employed for 14 years.
Employees
At March 31, 2005, we had a total of 138 employees, including 26 hourly employees. None of our employees are represented by any collective bargaining group. Management considers our employee relations to be good.
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Item 2.
Item 2. Properties
The following table sets forth information at March 31, 2005, with respect to our offices, furniture and equipment. We believe that our current facilities are adequate to meet our present and foreseeable need.
Location Opened Owned or
Lease
Expiration Gross Square
Footage Net Book Value
at March 31,
38 North Central Avenue
Staunton, Virginia Owned 17,000 $1,463,000
Rte 250 West
Waynesboro, Virginia Owned 5,300 663,000
Route 340 and 608
Stuarts Draft, Virginia Owned 3,000 1,049,000
5300 Kemps River Drive
Virginia Beach, Virginia 2,400 54,000
621 Nevan Road
Virginia Beach, Virginia 13,000 935,000
101 Community Way
Staunton, Virginia 4,500 678,000
2134 Raphine Road,
Raphine, Virginia 2,308 50,000
21 Dick Huff Lane
Verona, Virginia Owned 3,850 1,431,000
123 West Frederick Street
Staunton, Virginia Owned 22,000 1,523,000
Our accounting and record-keeping activities are maintained on an in-house computer system. The net book value of our computer equipment at March 31, 2005 was $99,675.
Item 3.
Item 3. Legal Proceedings
There are no material pending legal proceedings to which we or our subsidiary is a party or to which any of our property is subject.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the quarter ended March 31, 2005.
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PART II
Item 5.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
The information contained under the caption "Common Stock" on page 36 of the Registrant's Annual Report to Stockholders attached hereto as Exhibit 13 is incorporated herein by reference. In addition, the Equity Compensation Plan information contained in Part III, Item 12 of this Form 10-K is incorporated herein by reference. No stock was repurchased by the Company during the fourth quarter of fiscal 2005.
Item 6.
Item 6. Selected Financial Data
The Selected Consolidated Financial Data on page 3 in the Registrant's Annual Report to Stockholders attached hereto as Exhibit 13 is incorporated herein by reference.	
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation
The information under the caption "Management's Discussion and Analysis" on pages 5 through 12 of the Registrant's Annual Report to Stockholders attached hereto as Exhibit 13 is incorporated herein by reference.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information under the caption "Management's Discussion and Analysis" on pages 5 through 12 of the Registrant's Annual Report to Stockholders attached hereto as Exhibit 13 is incorporated herein by reference.
Item 8.
Item 8. Financial Statements and Supplementary Data
The Financial Statements on pages 13 through 35 in the Registrant's Annual Report to Stockholders attached hereto as Exhibit 13 is incorporated herein by reference.
Item 9.
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
There has been no current report on Form 8-K filed within 48 months prior to the date of the most recent financial statements reporting a change in accountants and/or reporting disagreements on any matter of accounting principle on financial statements disclosure.
Item 9A.
Item 9A. Controls and Procedures
An evaluation of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the "Act")) as of March 31, 2005, was carried out under the supervision and with the participation of the Company's Chief Executive Officer, Chief Financial Officer and several other members of the Company's senior management. The Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures currently in effect are effective in ensuring that the information required to be disclosed by the Company in the reports it files or submits under the Act is: (i) accumulated and communicated to the Company's management (including the Chief Executive Officer and Chief Financial Officer) in a timely manner and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. In addition, there have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Act) that occurred during the quarter ended March 31, 2005, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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The Company does not expect that its disclosure controls and procedures and internal control over financial reporting will prevent all error and all fraud. A control procedure, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control procedure are met. Because of the inherent limitations in all control procedures, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls may be circumvented by the individual acts of some persons, by collusion of two or more people, or by override of the control. The design of any control procedure also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control procedure, misstatements due to error or fraud may occur and not be detected.
Section 404 of the Sarbanes-Oxley Act of 2002 requires that companies evaluate and annually report on their systems of internal control over financial reporting. In addition, our independent accountants must report on management's evaluation. We are in the process of evaluating, documenting and testing our system of internal control over financial reporting to provide the basis for our report that will, for the first time, be a required part of our annual report on Form 10-K for the fiscal year ending March 31, 2006. Due to the ongoing evaluation and testing of our internal controls, there can be no assurance that if any control deficiencies are identified they will be remediated before the end of the 2006 fiscal year, or that there will not be significant deficiencies or material weaknesses that would be required to be reported.
Item 9B.
Item 9B. Other Information
None.
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PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
Directors and Executive Officers
Information concerning directors of the Registrant is incorporated herein by reference from our definitive Proxy Statement for the 2005 Annual Meeting of Stockholders, copy of which will be filed not later than 120 days after the close of the fiscal year.
Information concerning executive officers is set forth in Part I of this report under the caption "Executive Officers."
Compliance with Section 16(a)
Information concerning compliance with Section 16(a) of the Securities Exchange Act of 1934 is incorporated herein by reference from our definitive Proxy Statement for the 2005 Annual Meeting of Stockholders, a copy of which will be filed not later than 120 days after the close of the fiscal year.
Audit Committee Financial Expert
Information concerning the audit committee of the Company's Board of Directors, including information regarding audit committee financial experts serving on the audit committee, is incorporated herein by reference from the definitive Proxy Statement for the 2005 Annual Meeting of Stockholders, a copy of which will be filed not later than 120 days after the close of the fiscal year.
Code of Ethics
The Company has adopted a written Code of Ethics based upon the standards set forth under Item 406 of Regulation S-K of the Securities Exchange Act. The Code of Ethics applies to all of the Company's directors, officers and employees. A copy of the Company's Code of Ethics was filed with the SEC as Exhibit 14 to its Annual Report on Form 10-KSB for the year ended March 31, 2004. You may obtain a copy of the Code of Ethics free of charge from the Company by writing to the Secretary of Community Financial Corporation at 38 North Central Avenue, Staunton, Virginia 24401, or by calling (540) 885-0993
Item 11.
Item 11. Executive Compensation
Information concerning executive compensation is incorporated herein by reference from our definitive Proxy Statement for the 2005 Annual Meeting of Stockholders, a copy of which will be filed not later than 120 days after the close of the fiscal year.
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Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Information concerning security ownership of certain beneficial owners and management is incorporated herein by reference from our definitive Proxy Statement for the 2005 Annual Meeting of Stockholders, a copy of which will be filed not later than 120 days after the close of the fiscal year.
The following table summarizes our equity compensation plans as of March 31, 2005.
Equity Compensation Plans
Plan Category Number of securities
to be issued upon
exercise of out-standing options,
warrants and rights Weighted-average
exercise price of
outstanding options,
warrants and rights Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column
(1))
Equity compensation
plans approved by
security holders 301,650 $15.32 14,700
Equity compensation
plans not approved
by security holders
Total 301,650 $15.32 14,700
The number of shares available for issuance are adjusted for changes in capitalization due to reorganization, recapitalization, stock splits, stock dividends combination or exchange of shares, merger, consolidation or any change in the corporate structure.
Item 13.
Item 13. Certain Relationships and Related Transactions
Information concerning certain relationships and transactions is incorporated herein by reference from our definitive Proxy Statement for the 2005 Annual Meeting of Stockholders, a copy of which will be filed not later than 120 days after the close of the fiscal year.
Item 14.
Item 14. Principal Accountant Fees and Services
Information concerning fees and services by our principal accountants is incorporated herein by reference from our definitive Proxy Statement for the 2005 Annual Meeting of Stockholders, a copy of which will be filed not later than 120 days after the close of the fiscal year.
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PART IV
Item 15.
Item 15. Exhibits, Financial Statement Schedules
See Exhibit Index.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By:/s/ P. Douglas Richard
P. Douglas Richard
President and Chief
Executive Officer
(Principal Executive Officer)
By: /s/ James R. Cooke, Jr.
James R. Cooke, Jr.
Chairman of the Board
and Director
Date:June 29, 2005
Date: June 29, 2005
By:/s/ Jane C. Hickok
Jane C. Hickok
Vice Chairman of the Board
and Director
By: /s/ Charles F. Andersen
Charles F. Andersen
Director
Date:June 29, 2005
Date: June 29, 2005
By:/s/ Dale C. Smith
Dale C. Smith
Director
By: /s/ Morgan N. Trimyer, Jr.
Morgan N. Trimyer, Jr.
Director
Date:June 29, 2005
Date: June 29, 2005
By:/s/ R. Jerry Giles
R. Jerry Giles
Chief Financial Officer
(Principal Financial and
Accounting Officer)
By: /s/ Charles W. Fairchilds Charles W. Fairchilds
Director
Date:June 29, 2005
Date: June 29, 2005
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INDEX TO EXHIBITS
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INDEX TO EXHIBITS (Continued)
40END