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EXCEL - IDEA: XBRL DOCUMENT - COMMUNITY FINANCIAL SHARES INCFinancial_Report.xls
EX-32.1 - EXHIBIT 32.1 - COMMUNITY FINANCIAL SHARES INCv407325_ex32-1.htm
EX-31.1 - EXHIBIT 31.1 - COMMUNITY FINANCIAL SHARES INCv407325_ex31-1.htm
EX-32.2 - EXHIBIT 32.2 - COMMUNITY FINANCIAL SHARES INCv407325_ex32-2.htm
EX-31.2 - EXHIBIT 31.2 - COMMUNITY FINANCIAL SHARES INCv407325_ex31-2.htm

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

 

ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  
  SECURITIES EXCHANGE ACT OF 1934  
     
  For the quarterly period ended March 31, 2015  
     
  OR  
     
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE  
  SECURITIES EXCHANGE ACT OF 1934  

 

For the transition period from ____________ to ____________

Commission file number: 0-51296

COMMUNITY FINANCIAL SHARES, INC.

(Exact name of registrant as specified in its charter)

 

Maryland 36-4387843
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
   

357 Roosevelt Road

Glen Ellyn, Illinois

 

60137

(Address of principal executive offices) (Zip Code)

 

(630) 545-0900

(Registrant’s telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)

 

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 90 days.

Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)

 

Large Accelerated Filer ¨ Accelerated Filer ¨
   
Non-Accelerated Filer ¨ Smaller Reporting Company x
(Do not check if a smaller reporting company)  

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class   Outstanding at May 8, 2015
Common Stock, $0.01 par value per share   10,781,988 shares

 

 
 

 

Form 10-Q Quarterly Report

 

Table of Contents

 

  PART I – FINANCIAL INFORMATION  
     
Item 1. Financial Statements 3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 25
Item 3. Quantitative and Qualitative Disclosures About Market Risk 36
Item 4 Controls and Procedures 36
     
     
  PART II – OTHER INFORMATION  
     
Item 1. Legal Proceedings 37
Item 1A. Risk Factors 37
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 37
Item 3. Defaults Upon Senior Securities 37
Item 4. Mine Safety Disclosures 37
Item 5. Other Information 37
Item 6. Exhibits 37
  Signatures 38

 

2
 

 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

 

COMMUNITY FINANCIAL SHARES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

 

   March 31,   December 31, 
    2015   2014 
   (Unaudited)     
ASSETS          
Cash and due from banks  $3,990   $11,256 
Interest-bearing deposits   6,691    12,359 
Cash and cash equivalents   10,681    23,615 
           
Securities available for sale   122,828    105,985 
Loans, less allowance for loan losses of $2,445 and $2,442          
at March 31, 2015 and December 31, 2014, respectively   180,049    182,573 
Foreclosed assets, net   1,363    2,199 
Federal Home Loan Bank stock   1,119    1,119 
Premises and equipment, net   14,339    14,473 
Cash value of life insurance   6,908    6,857 
Interest receivable and other assets   6,406    6,191 
           
Total assets  $343,693   $343,012 
           
LIABILITIES AND SHAREHOLDERS' EQUITY          
Deposits  $305,593   $305,421 
Federal Home Loan Bank advances   2,000    2,000 
Subordinated debentures   3,609    3,609 
Interest payable and other liabilities   3,326    3,406 
Total liabilities   314,528    314,436 
           
Commitments and contingent liabilities   -    - 
           
Shareholders' equity          
Common stock - $0.01 par value, 75,000,000 shares authorized;          
10,781,988 shares issued and outstanding   -    - 
Preferred stock - $1.00 par value, $100 liquidation preference 1,000,000          
shares authorized; 191,246 shares issued and outstanding   191    191 
Paid-in capital   30,398    30,395 
Accumulated deficit   (1,574)   (1,750)
Accumulated other comprehensive income/(loss)   150    (260)
Total shareholders' equity   29,165    28,576 
           
Total liabilities and shareholders' equity  $343,693   $343,012 

 

See Notes to Condensed Consolidated Financial Statements

 

3
 

 

COMMUNITY FINANCIAL SHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

Three Months Ended March 31, 2015 and 2014

(In thousands, except share and per share data)

(Unaudited)

 

 

    Three Months  
    Ended March 31,  
    2015     2014  
Interest and dividend income                
Interest and fees on loans   $ 2,299     $ 2,548  
Securities:                
Taxable     393       332  
Exempt from federal income tax     71       90  
Other interest income     8       16  
Total interest and dividend income     2,771       2,986  
Interest expense                
Deposits     277       311  
Federal Home Loan Bank advances and other                
borrowed funds     15       27  
Subordinated debentures     17       17  
Total interest expense     309       355  
Net interest income     2,462       2,631  
Provision for loan losses     24       136  
Net interest income after provision for loan losses     2,438       2,495  
Non-interest income                
Service charges on deposit accounts     80       83  
Gain on sale of loans     106       112  
Gain on sale of assets     11       -  
Loss on sale of foreclosed assets     (22 )     (21 )
Other non-interest income     235       230  
Total non-interest income     410       404  
Non-interest expense                
Salaries and employee benefits     1,323       1,450  
Net occupancy and equipment expense     311       356  
Data processing expense     253       245  
Advertising and promotions     31       38  
Professional fees     381       198  
FDIC insurance premiums     75       135  
Other real estate owned expenses     28       48  
Other operating expenses     198       194  
Total non-interest expense     2,600       2,664  
Income before income taxes     248       235  
Income taxes     72       -  
Net income   $ 176     $ 235  
Earnings per share                
Basic   $ 0.01     $ 0.01  
Diluted   $ 0.01     $ 0.01  
                 
Average shares outstanding basic     10,781,988       10,781,988  
Average shares outstanding diluted     10,782,053       10,782,043  
Dividends per share   $ 0.00     $ 0.00  

 

See Notes to Condensed Consolidated Financial Statements

 

4
 

 

COMMUNITY FINANCIAL SHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended March 31, 2015 and 2014

(In thousands, except share and per share data)

(Unaudited)

   Three Months 
   Ended March 31, 
   2015   2014 
         
Net income  $176   $235 
Other comprehensive income:          
Unrealized holding gains arising during the period:          
Unrealized net gains   670    774 
Related income tax expense   (260)   (300)
Net unrealized gains   410    474 
Other comprehensive income   410    474 
Comprehensive income  $586   $709 

 

See Notes to Condensed Consolidated Financial Statements

 

5
 

 

COMMUNITY FINANCIAL SHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

Three Months Ended March 31, 2015 and 2014

(In thousands, except share and per share data)

(Unaudited)

 

 

   Number               Accumulated     
   of               Other   Total 
   Common   Preferred   Paid-In   Accumulated   Comprehensive   Shareholders' 
   Shares   Stock   Capital   Deficit   Income (loss)   Equity 
                         
Balance at January 1, 2015   10,781,988   $191   $30,395   $(1,750)  $(260)  $28,576 
Net income   -    -    -    176    -    176 
Other comprehensive income   -    -    -    -    410    410 
Amortization of stock option expense   -    -    3    -    -    3 
Balance at March 31, 2015   10,781,988   $191   $30,398   $(1,574)  $150   $29,165 
                               
Balance at January 1, 2014   10,781,988   $191   $30,386   $(7,133)  $(1,817)  $21,627 
Net income   -    -    -    235    -    235 
Other comprehensive income   -    -    -    -    474    474 
Amortization of stock option expense   -    -    3    -    -    3 
Balance at March 31, 2014   10,781,988   $191   $30,389   $(6,898)  $(1,343)  $22,339 

 

See Notes to Condensed Consolidated Financial Statements

 

6
 

 

COMMUNITY FINANCIAL SHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months Ended March 31, 2015 and 2014

(In thousands)

(Unaudited)

 

 

   Three Months 
   Ended March 31, 
   2015   2014 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net income  $176   $235 
Adjustments to reconcile net loss to net cash          
from (used in) operating activities          
Amortization on securities, net   347    235 
Depreciation   140    150 
Provision for loan losses   24    136 
Gain on sale of assets   (11)   - 
Loss on sale of foreclosed assets   22    21 
Gain on sale of loans   (106)   (112)
Originations of loans for sale   (4,676)   (4,113)
Proceeds from sales of loans   4,782    4,105 
Compensation cost of stock options   3    3 
Change in cash value of life insurance   (51)   (54)
Change in interest receivable and other assets   (777)   34 
Change in interest payable and other liabilities   (79)   34 
Net cash from (used in) operating activities   (206)   674 
CASH FLOWS FROM INVESTING ACTIVITIES          
Net change in interest-bearing time deposits   -    498 
Purchases of securities available for sale   (20,991)   (451)
Proceeds from maturities and calls of securities available for sale   4,471    3,472 
Proceeds from sale of other real estate owned   1,128    167 
Net change in loans   2,500    (2,425)
Property and equipment expenditures, net   (7)   (91)
Net cash from (used in) investing activities   (12,899)   1,170 
CASH FLOWS FROM FINANCING ACTIVITIES          
Change in:          
Non-interest bearing and interest-bearing demand          
deposits and savings   2,591    3,023 
Certificates and other time deposits   (2,420)   (2,948)
Net cash from financing activities   171    75 
           
Change in cash and cash equivalents   (12,934)   1,919 
Cash and cash equivalents at beginning of period   23,615    29,552 
CASH AND CASH EQUIVALENTS AT END OF PERIOD  $10,681   $31,471 
           
Supplemental disclosures          
Interest paid  $310   $343 
Income taxes paid   -    - 
Transfers from loans to foreclosed assets   290    - 

 

See Notes to Condensed Consolidated Financial Statements

 

7
 

 

COMMUNITY FINANCIAL SHARES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Table dollars in thousands)

March 31, 2015 and 2014

(Unaudited)

 

 

NOTE 1 – BASIS OF PRESENTATION

 

The accounting policies followed in the preparation of the interim condensed consolidated financial statements included in this Quarterly Report on Form 10-Q are consistent with those used in the preparation of annual consolidated financial statements. The interim condensed consolidated financial statements reflect all normal and recurring adjustments, which are necessary, in the opinion of management of Community Financial Shares, Inc. (the “Company”), for a fair statement of results of operations and cash flows for the interim periods presented. Results of operations and cash flows for the three months ended March 31, 2015 are not necessarily indicative of the results of operations and cash flows that may be expected for the year ending December 31, 2015 or any other period.

 

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for the interim financial period and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, which was filed with the U.S. Securities and Exchange Commission on March 13, 2015. The condensed consolidated balance sheet of the Company as of December 31, 2014 has been derived from the audited consolidated balance sheet as of that date.

 

 

NOTE 2 – EARNINGS PER SHARE

 

The following is an analysis of the Company’s basic and diluted earnings per common share, reflecting the application of the two-class method for the three months ended March 31, 2015 and 2014:

 

   

Three Months

Ended

March 31, 2015

   

Three Months

Ended

March 31, 2014

 
             
Net income available for distribution   $ 176     $ 235  
Dividends and undistributed earnings allocated to participating securities     (112 )     (150 )
Income attributable to common shareholders   $ 64     $ 85  
                 
Average common shares outstanding for basic earnings per share     10,781,988       10,781,988  
Effect of dilutive stock options     65       55  
Average common and common-equivalent shares for dilutive earnings per share     10,782,053       10,782,043  
                 
Basic   $ 0.01     $ 0.01  
Diluted   $ 0.01     $ 0.01  

 

The Company’s preferred stockholders are entitled to participate in all common stock dividends on an as-converted basis, and no dividends may be paid on shares of the Company’s common stock unless an identical dividend is paid to preferred stockholders on an as-converted basis.

 

There were 19,980 and 23,580 anti-dilutive shares at March 31, 2015 and 2014, respectively.

 

8
 

 

NOTE 3 – CAPITAL ADEQUACY AND REGULATORY AND SUPERVISORY MATTERS

 

At the dates indicated, the capital ratios of Community Bank-Wheaton/Glen Ellyn (the “Bank”), the wholly owned subsidiary of the Company, were as follows:

   March 31, 2015   December 31, 2014 
   Amount   Ratio   Amount   Ratio 
                 
Total capital (to risk-weighted assets)  $28,361    13.7%  $27,941    13.4%
Tier I capital (to risk-weighted assets)   25,916    12.5%   25,499    12.2%
Tier I capital (to average assets)   25,916    7.9%   25,499    7.7%
Common equity tier I capital   25,916    12.5%    N/A     N/A 

 

On January 10, 2014, the Bank received notification from the Federal Deposit Insurance Corporation (the “FDIC”) and the Division of Banking of the Illinois Department of Financial and Professional Regulation (the “IDFPR”) that the Consent Order (the “Order”) issued to the Bank by the FDIC and IDFPR on January 21, 2011 was terminated effective January 10, 2014. The material terms and conditions of the Order were previously disclosed in the Company’s Current Report on Form 8-K filed on January 26, 2011. In connection with the termination of the Order, the Bank agreed to achieve Tier 1 capital at least equal to 8% of total assets and total capital at least equal to 12% of risk-weighted assets. At March 31, 2015, these capital ratios were 7.8% and 13.8%, respectively.

 

Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings, and other factors, and the regulators can lower classifications in certain cases. Failure to meet various capital requirements can initiate regulatory action that could have a direct material effect on the financial statements. The prompt corrective action regulations provide five classifications, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If undercapitalized, capital distributions, asset growth and expansion are limited and plans for capital restoration are required.

 

NOTE 4 - SECURITIES AVAILABLE FOR SALE

 

The fair value of securities available for sale at March 31, 2015 and December 31, 2014 are as follows:

 

    March 31, 2015  
    Fair
Value
    Gross Unrealized Gains     Gross Unrealized Losses  
U.S. government agency debt securities   $ 15,911     $ 18     $ (137 )
State and political subdivisions     29,028       220       (60 )
U.S. government agency mortgage-backed securities     66,472       468       (271 )
Preferred stock     19       15       -  
SBA securities     11,398       24       (32 )
    $ 122,828     $ 745     $ (500 )

 

9
 

 

    December 31, 2014  
    Fair
Value
    Gross Unrealized Gains     Gross Unrealized Losses  
U.S. government agency debt securities   $ 7,738     $ -     $ (236 )
State and political subdivisions     19,913       112       (92 )
U.S. government agency mortgage-backed securities     66,139       316       (483 )
Preferred stock     15       11       -  
SBA securities     12,180       13       (66 )
    $ 105,985     $ 452     $ (877 )

  

Securities classified as U. S. government agency debt securities include notes issued by government-sponsored enterprises such as the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, and the Federal Home Loan Bank. The SBA securities are pools of loans guaranteed by the Small Business Administration.

 

The following tables show gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2015 and December 31, 2014:

 

   March 31, 2015 
   Less than 12 Months   12 Months or More   Total 
Description of Securities  Fair Value   Unrealized
Losses
   Fair Value   Unrealized
Losses
   Fair Value   Unrealized
Losses
 
U.S. government agency debt securities  $4,010   $(8)  $5,849   $(129)  $9,859   $(137)
State and political subdivisions   9,000    (38)   1,089    (22)   10,089    (60)
U.S. government agency mortgage-backed securities   16,109    (56)   14,153    (215)   30,262    (271)
SBA securities   2,641    (8)   4,402    (24)   7,043    (32)
Total temporarily impaired securities  $31,760   $(110)  $25,493   $(390)  $57,253   $(500)

 

   December 31, 2014 
   Less than 12 Months   12 Months or More   Total 
Description of Securities  Fair Value   Unrealized
Losses
   Fair Value   Unrealized
Losses
   Fair Value   Unrealized
Losses
 
U.S. Government agency debt securities  $-   $-   $7,738   $(236)  $7,738   $(236)
State and political subdivisions   6,601    (31)   3,801    (61)   10,402    (92)
U.S. government agency mortgage-backed securities   13,988    (59)   23,516    (424)   37,504    (483)
SBA securities   5,065    (22)   4,978    (44)   10,043    (66)
Total temporarily impaired securities  $25,654   $(112)  $40,033   $(765)  $65,687   $(877)

 

Unrealized gains and losses within the investment portfolio are determined to be temporary. The Company performed an evaluation of its investments for other than temporary impairment and there was no impairment identified during the three months ended March 31, 2015. The entire portfolio is classified as available for sale, however, management has no specific intent to sell any securities, and it is more likely than not that the Company will not have to sell any security before recovery of its amortized cost basis.

 

10
 

 

The fair values of securities available for sale at March 31, 2015, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity are shown separately.

 

    Amortized
Cost
    Fair
Value
 
Due in one year or less   $ 474     $ 474  
Due after one year through five years     19,604       19,624  
Due after five years through ten years     19,669       19,781  
Due after ten years     5,151       5,060  
                 
U.S. government agency mortgage-backed securities     66,275       66,472  
SBA securities     11,406       11,398  
Preferred stock     4       19  
    $ 122,583     $ 122,828  

 

Securities with a carrying value of approximately $7.5 million at March 31, 2015 were pledged to secure public deposits as well as for other purposes as required or permitted by law.

 

There were no sales of securities during the three months ended March 31, 2015 and 2014.

 

NOTE 5 – LOANS

 

Loans and Loan Income: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoffs are reported at their outstanding principal balances as adjusted for unearned income, charge-offs, the allowance for loan losses, any unamortized deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans.

 

For loans amortized at cost, interest income is accrued based on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, as well as premiums and discounts, are deferred and amortized as a level yield adjustment over the respective term of the loan.

 

The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days past due unless the credit is well-secured and in process of collection. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful.

 

All interest that is accrued but not collected with respect to loans that are placed on nonaccrual or charged off is reversed against interest income. The interest on these loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

 

Discounts and premiums on purchased residential real estate loans are amortized to income using the interest method over the remaining period to contractual maturity, adjusted for anticipated prepayments. Discounts and premiums on purchased consumer loans are recognized over the expected lives of the loans using methods that approximate the interest method.

 

Allowance for Loan Losses: The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to income. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

 

The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

 

11
 

 

The allowance consists of allocated and general components. The allocated component relates to loans that are classified as impaired. For those loans that are classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers nonclassified loans and is based on historical charge-off experience and expected loss given default derived from the Company’s internal risk rating process. Other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences on credit quality that are not fully reflected in the historical loss or risk rating data.

 

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is collateral dependent.

 

Groups of loans with similar risk characteristics are collectively evaluated for impairment based on the group’s historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans. Accordingly, the Company does not separately identify individual consumer and residential loans for impairment measurements, unless such loans are the subject of a restructuring agreement due to financial difficulties of the borrower.

 

The Company has a geographic concentration of loan and deposit customers within the Chicago metropolitan area. Most of the Company’s loans are secured by specific items of collateral including commercial and residential real estate and other business and consumer assets. Commercial loans are expected to be repaid from cash flow from operations of businesses.

 

Loans consisted of the following at March 31, 2015 and December 31, 2014, respectively:

 

   March 31,   December 31, 
   2015   2014 
Real estate          
Commercial  $91,221   $92,669 
Construction   2,570    1,853 
Residential   27,581    26,676 
Home equity   43,935    46,339 
Total real estate loans   165,307    167,537 
Commercial   15,783    16,048 
Consumer   1,134    1,163 
Total loans   182,224    184,748 
Deferred loan costs, net   270    267 
Allowance for loan losses   (2,445)   (2,442)
Loans, net  $180,049   $182,573 

 

12
 

 

The risk characteristics of each loan portfolio segment are as follows:

 

Commercial

 

Commercial loans are primarily based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

 

Commercial Real Estate

 

These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type and geographic location. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. As a general rule, the Company avoids financing single purpose projects unless other underwriting factors are present to help mitigate risk. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans.

 

Construction

 

Construction loans are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analysis of absorption and lease rates and financial analysis of the developers and property owners. Construction loans are generally based on estimates of costs and value associated with the completed project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.

 

Residential and Consumer, including Home Equity Lines of Credit (HELOC)

 

With respect to residential loans that are secured by one-to-four family residences and are generally owner occupied, the Company generally establishes a maximum loan-to-value ratio and may require private mortgage insurance if that ratio is exceeded. Home equity loans are typically secured by a subordinate interest in one-to-four family residences, and consumer loans are secured by consumer assets such as automobiles or recreational vehicles. Some consumer loans are unsecured such as small installment loans and certain lines of credit. Repayment of these loans is primarily dependent on the personal income of the borrowers, which can be impacted by economic conditions in their market areas such as unemployment levels. Repayment can also be impacted by changes in property values on residential properties. Risk is mitigated by the fact that the loans are of smaller individual amounts and spread over a large number of borrowers.

 

Policy for charging off loans:

 

Management’s general practice is to establish a reserve or proactively charge down loans individually evaluated for impairment to the fair value of the underlying collateral.

 

Consistent with regulatory guidance, charge-offs on all loan segments are taken when specific loans, or portions thereof, are considered uncollectible. The Company’s policy is to promptly charge these loans off in the period the uncollectible loss is reasonably determined.

 

13
 

 

For all loan portfolio segments except one-to-four family residential loans and consumer loans, the Company promptly establishes a reserve or charges-off loans, or portions thereof, when available information confirms that specific loans are uncollectible based on information that includes, but is not limited to, (1) the deteriorating financial condition of the borrower, (2) declining collateral values, and/or (3) legal action, including bankruptcy, that impairs the borrower’s ability to adequately meet its obligations. For impaired loans that are considered to be solely collateral dependent, a partial charge-off is recorded when a loss has been confirmed by an updated appraisal or other appropriate valuation of the collateral.

 

The Company charges-off one-to-four family residential and consumer loans, or portions thereof, when the Company reasonably determines the amount of the loss. The Company adheres to timeframes established by applicable regulatory guidance which provides for the (1) charge-down of one-to-four family first and junior lien mortgages to the net realizable value less costs to sell when the loan is 180 days past due, (2) charge-off of unsecured open-end loans when the loan is 180 days past due, and (3) charge down to the net realizable value when other secured loans are 120 days past due. A loan that meets these respective delinquency thresholds need not be charged-off if the Company can clearly document that the loan is both well-secured and in the process of collection and that collection will occur regardless of delinquency status.

 

Policy for determining delinquency:

 

The entire balance of a loan is considered delinquent if the minimum payment contractually required to be made is not received by the specified due date.

 

Period utilized for determining historical loss factors:

 

The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the prior three years. Management believes the five year historical loss experience methodology is appropriate in the current economic environment, as it captures loss rates that are comparable to the current period being analyzed.

 

Policy for recognizing interest income on impaired loans:

 

Interest income on loans individually classified as impaired is recognized on a cash basis after all past due and current principal payments have been made.

 

Policy for recognizing interest income on non-accrual loans:

 

Subsequent payments on non-accrual loans are recorded as a reduction of principal, and interest income is recorded only after principal recovery is reasonably assured. Nonaccrual loans are returned to accrual status when, in the opinion of management, the financial position of the borrower indicates there is no longer any reasonable doubt as to the timely collection of interest or principal. The Company requires a period of satisfactory performance of not less than six months before returning a nonaccrual loan to accrual status.

 

The Bank has entered into transactions, including the making of direct and indirect loans, with certain directors of the Company and the Bank and their affiliates (related parties). Such transactions were made in the ordinary course of business and were made on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with other persons not related to the Company or the Bank. Further, in management’s opinion, these loans did not involve more than normal risk of collectibility or present other unfavorable features.

 

The aggregate amount of loans, as defined, to such related parties were as follows:

 

Balances, January 1, 2015  $765 
New loans including renewals   - 
Payments including renewals   (24)
Balances, March 31, 2015  $741 

 

14
 

 

The following tables present the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method for the three months ended March 31, 2015 and 2014:

 

   Three Months Ended March 31, 2015 
   Commercial   Commercial
Real Estate
   Construction   Consumer   Residential   HELOC   Total 
                             
Balance at beginning of period  $353   $1,175   $31   $15   $346   $522   $2,442 
Provision for loan losses   17    (87)   12    3    83    (4)   24 
Charge-offs   -    -    -    (3)   -    (76)   (79)
Recoveries   -    51    -    -    6    1    58 
Balance at end of period  $370   $1,139   $43   $15   $435   $443   $2,445 
                                    
Ending balance: individually evaluated for impairment  $40   $-   $-   $-   $132   $35   $207 
Ending balance: collectively evaluated for impairment  $330   $1,139   $43   $15   $303   $408   $2,238 
Total Loans:                                   
Ending balance  $15,783   $91,221   $2,570   $1,134   $27,581   $43,935   $182,224 
Ending balance: individually evaluated for impairment  $40   $-   $-   $-   $530   $564   $1,134 
Ending balance: collectively evaluated for impairment  $15,743   $91,221   $2,570   $1,134   $27,051   $43,371   $181,090 

 

 

   Three Months Ended March 31, 2014 
   Commercial   Commercial
Real Estate
   Construction   Consumer   Residential   HELOC   Total 
                             
Balance at beginning of period  $483   $1,336   $44   $41   $266   $330   $2,500 
Provision for loan losses   (16)   90    (31)   (23)   (13)   129    136 
Charge-offs   -    -    -    (2)   -    -    (2)
Recoveries   66    6    -    -    1    -    73 
Balance at end of period  $533   $1,432   $13   $16   $254   $459   $2,707 
                                    
Ending balance: individually evaluated for impairment  $-   $28   $-   $-   $-   $110   $138 
Ending balance: collectively evaluated for impairment  $533   $1,404   $13   $16   $255   $348   $2,569 
Total Loans:                                   
Ending balance  $21,650   $101,485   $999   $1,208   $24,463   $48,399   $198,204 
Ending balance: individually evaluated for impairment  $-   $437   $-   $-   $-   $655   $1,092 
Ending balance: collectively evaluated for impairment  $21,650   $101,048   $999   $1,208   $24,463   $47,744   $197,112 

 

15
 

 

The following table presents the balance in the allowance for loan losses and the recorded investment in loans based on portfolio segment and impairment method as of December 31, 2014:

 

   December 31, 2014 
   Commercial   Commercial
Real Estate
   Construction   Consumer   Residential   HELOC   Total 
                             
Balance at beginning of period  $483   $1,336   $44   $41   $266   $330   $2,500 
Provision for loan losses   (205)   (138)   (13)   (23)   50    254    (75)
Charge-offs   -    (28)   -    (3)   -    (64)   (95)
Recoveries   75    5    -    -    30    2    112 
Balance at end of period  $353   $1,175   $31   $15   $346   $522   $2,442 
                                    
Ending balance: individually evaluated for impairment  $-   $-   $-   $-   $38   $88   $126 
Ending balance: collectively evaluated for impairment  $353   $1,175   $31   $15   $308   $434   $2,316 
Total Loans:                                   
Ending balance  $16,048   $92,669   $1,853   $1,163   $26,676   $46,339   $184,748 
Ending balance: individually evaluated for impairment  $-   $823   $-   $-   $528   $965   $2,316 
Ending balance: collectively evaluated for impairment  $16,048   $91,846   $1,853   $1,163   $26,148   $45,375   $182,433 

 

 

The following table summarizes the Company’s nonaccrual loans by class at March 31, 2015 and December 31, 2014.

 

   

March 31,

2015

     December 31,
2014
 
Real estate loans:                
Commercial   $ -     $ 823  
Residential mortgage     519       528  
Home equity     605       964  
Commercial     40       -  
Total   $ 1,164     $ 2,315  

 

The following tables present information regarding impaired loans as of March 31, 2015:

 

       Three Months Ended March 31, 
           2015   2014 
   Recorded
Balance
   Unpaid Principal Balance   Specific Allowance   Average Investment in Impaired
Loans
   Interest Income Recognized   Average Investment in Impaired
Loans
   Interest Income Recognized 
With no related allowance recorded:                                   
Commercial  $-   $-   $-   $-   $-   $-   $- 
Commercial real estate   -    -    -    -    -    -    - 
Residential   -    -    -    -    -    -    - 
HELOC   421    431    -    431    -    100    - 
Subtotal   421    431    -    431    -    100    - 
With an allowance recorded:                                   
Commercial   40    40    40    40    -    -    - 
Commercial real estate   -    -    -    -    -    812    - 
Residential   518    530    132    530    -    -    - 
HELOC   133    133    35    133    -    555    - 
    Subtotal   691    703    207    703    -    1,367    - 
Total Impaired Loans  $1,112   $1,134   $207   $1,134   $-   $1,467   $- 

 

16
 

 

The following table presents information regarding impaired loans as of December 31, 2014:

 

   Recorded
Balance
   Unpaid Principal Balance   Specific Allowance   Average Investment in Impaired Loans   Interest Income Recognized 
With no related allowance recorded:                         
Commercial real estate  $823   $835   $-   $837   $30 
Residential   -    -    -    7    - 
HELOC   509    514    -    632    8 
Subtotal   1,332    1,349    -    1,476    38 
With an allowance recorded:                         
Commercial real estate   -    -    -    792    12 
Residential   528    531    38    532    24 
HELOC   456    516    88    579    22 
Subtotal   984    1,047    126    1,903    58 
Total Impaired Loans  $2,316   $2,396   $126   $3,379   $96 

 

 

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis is performed during the loan approval process and is updated as circumstances warrant. The Company uses the following definitions for risk ratings:

 

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Bank’s credit position at some future date.

 

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Loans so classified have a well- defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

 

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

 

The following tables summarize the credit quality of the Company at March 31, 2015 and December 31, 2014:

 

   March 31, 2015 
   Pass   Special
Mention
   Substandard   Doubtful   Loss   Total 
                         
Commercial  $15,680   $   $103   $   $   $15,783 
Real estate loans:                              
Construction   2,570                    2,570 
Commercial   89,032    226    1,963            91,221 
Residential   27,062        519            27,581 
Home equity   43,302    27    606            43,935 
Consumer   1,134                    1,134 
Total  $178,780   $253   $3,191   $   $   $182,224 

  

17
 

 

   December 31, 2014 
   Pass   Special
Mention
   Substandard   Doubtful   Loss   Total 
                         
Commercial  $15,983   $   $65   $   $   $16,048 
Real estate loans:                              
Construction   1,853                    1,853 
Commercial   89,644    227    2,798            92,669 
Residential mortgage   26,448        528            26,676 
Home equity   45,048    28    963            46,339 
Consumer   1,163                    1,163 
Total  $180,139   $255   $4,354   $   $   $184,748 

 

The following tables summarize past due aging of the Company’s loan portfolio at March 31, 2015 and December 31, 2014:

 

   March 31, 2015 
   30-59 Days
Past Due
   60-89 Days
Past Due
   Greater
Than
90 Days
   Total
Past Due
   Current   Total Loans   Loans >
90 Days and
Accruing
 
                             
Commercial  $   $   $40   $40   $15,743   $15,783   $ 
Real estate loans:                                   
Construction                   2,570    2,570     
Commercial                   91,221    91,221     
Residential           519    519    27,062    27,581     
Home equity           655    655    43,280    43,935    50 
Consumer       1        1    1,133    1,134     
Total  $   $1   $1,214   $1,215   $181,009   $182,224   $50 

 

   December 31, 2014 
   30-59 Days
Past Due
   60-89 Days
Past Due
   Greater
Than
90 Days
   Total
Past Due
   Current   Total Loans   Loans >
90 Days and
Accruing
 
                             
Commercial  $133   $56   $   $189   $15,859   $16,048   $ 
Real estate loans:                                   
Construction                   1,853    1,853     
Commercial real estate   301        823    1,124    91,545    92,669     
Residential mortgage       89    528    617    26,059    26,676     
Home equity   339        1,096    1,435    44,903    46,339    133 
Consumer   3            3    1,160    1,163     
Total  $776   $145   $2,447   $3,368   $181,380   $184,748   $133 

 

The Company may grant a concession or modification for economic or legal reasons related to a borrower’s financial condition that it would not otherwise consider resulting in a modified loan which is then identified as a troubled debt restructuring (“TDR”). The Company may modify loans through interest rate reductions, short-term extensions of maturity, interest only payments, or payment modifications to better match the timing of cash flows due under the modified terms with the cash flows from the borrowers’ operations. Loan modifications are intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. TDRs are considered impaired loans for purposes of calculating the Company’s allowance for loan losses.

 

18
 

 

The Company identifies loans for potential restructure primarily through direct communication with the borrower and evaluation of the borrower’s financial statements, revenue projections, tax returns and credit reports. Even if the borrower is not presently in default, management will consider the likelihood that cash flow shortages, adverse economic conditions, and negative trends may result in a payment default in the near future.

 

For one-to-four family residential and home equity lines of credit, a restructure often occurs with past due loans and may be offered as an alternative to foreclosure. There are other situations where borrowers who are not past due may experience a sudden job loss, become overextended with credit obligations or other financial problems, have indicated that they will be unable to make the required monthly payment and request payment relief.

 

When considering a loan restructure, management will determine if: (i) the financial distress is short or long term; (ii) loan concessions are necessary; and (iii) the restructure is a viable solution.

 

When a loan is restructured, the new terms often require a reduced monthly debt service payment. No TDRs that were on non-accrual status at the time the concessions were granted have been returned to accrual status.

 

For commercial loans, management completes an analysis of the operating entity’s ability to repay the debt. If the operating entity is capable of servicing the new debt service requirements and the underlying collateral value is believed to be sufficient to repay the debt in the event of a default, the new loan is generally placed on accrual status.

 

For retail loans, an analysis of the individual’s ability to service the new required payments is performed. If the borrower complies with the terms of the newly restructured debt for at least six consecutive months and the underlying collateral value is believed to be sufficient to repay the debt in the event of a future default, the new loan is generally placed on accrual status. The reason for the TDR is also considered, such as paying past due real estate taxes or payments caused by a temporary job loss, when determining whether a retail TDR loan could be returned to accrual status. Retail TDRs remain on non-accrual status until sufficient payments have been made to bring the past due principal and interest current at which point the loan would be transferred to accrual status.

 

There were no loans restructured as TDRs during the three months ended March 31, 2015 and 2014.

 

There were no payment defaults on the Company’s TDRs during the three months ended March 31, 2015 and 2014. A default occurs when a TDR is 90 days or more past due and is transferred to non-accrual status or to other real estate owned within twelve months of restructuring.

 

NOTE 6 – DISCLOSURES ABOUT FAIR VALUE OF ASSETS AND LIABILITIES

 

The Company measures fair value according to the Financial Accounting Standards Board Accounting Standards Codification (ASC) Fair Value Measurements and Disclosures (ASC 820-10). ASC 820-10 establishes a fair value hierarchy that prioritizes the inputs used in valuation techniques, but not the valuation techniques themselves. The fair value hierarchy is designed to indicate the relative reliability of the fair value measure. The highest priority is given to quoted prices in active markets and the lowest to unobservable data such as the Company’s internal information. ASC 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. There are three levels of inputs into the fair value hierarchy (Level 1 being the highest priority and Level 3 being the lowest priority):

 

Level 1Quoted prices in active markets for identical assets or liabilities.
Level 2Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

19
 

 

The following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis and recognized in the accompanying balance sheets, as well as the general classification of such instruments pursuant to the valuation hierarchy.

 

Available-for-sale Securities

 

If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Level 1 securities include preferred stock. Level 2 securities include certain collateralized mortgage and debt obligations, municipal securities, U.S. government agencies and SBA securities. Third party vendors compile prices from various sources and may apply techniques such as matrix pricing to determine the value of identical or similar investment securities (Level 2). Matrix pricing is a mathematical technique widely used in the banking industry to value investment securities without relying exclusively on quoted prices for specific investment securities but rather on the investment securities’ relationship to other benchmark quoted investment securities. The following tables are as of March 31, 2015 and December 31, 2014, respectively:

 

       At March 31, 2015 
       Fair Value Measurements Using 
   Fair             
Available-for-sale securities:  Value   Level 1   Level 2   Level 3 
U.S. government agency debt securities  $15,911   $-   $15,911   $- 
State and political subdivisions   29,028    -    29,028    - 
U.S. government agency mortgage-backed securities   66,472    -    66,472    - 
Preferred stock   19    19    -    - 
SBA securities   11,398    -    11,398    - 
Total available-for-sale securities  $122,828   $19   $122,809   $- 

 

 

       At December 31, 2014 
       Fair Value Measurements Using 
   Fair             
Available-for-sale securities:  Value   Level 1   Level 2   Level 3 
U.S. government agency debt securities  $7,738   $-   $7,738   $- 
State and political subdivisions   19,913    -    19,913    - 
U.S. government agency mortgage-backed securities   66,139    -    66,139    - 
Preferred stock   15    15    -    - 
SBA securities   12,180    -    12,180    - 
Total available-for-sale securities  $105,985   $15   $105,970   $- 

 

The following is a description of the valuation methodologies used for instruments measured at fair value on a non-recurring basis and recognized in the accompanying March 31, 2015 and December 31, 2014 balance sheets, as well as the general classification of such instruments pursuant to the valuation hierarchy.

 

Impaired Loans (Collateral Dependent)

 

Loans for which it is probable that the Bank will not collect all principal and interest due according to contractual terms are measured for impairment. Allowable methods for determining the amount of impairment include estimating fair value using the fair value of the collateral for collateral-dependent loans, based on current appraisals. If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of impairment is utilized. This method requires obtaining a current independent appraisal of the collateral and applying a discount factor to the value.

 

20
 

 

The Company considers the appraisal or evaluation as the starting point for determining fair value and then considers other factors and events in the environment that may affect fair value. The Company’s practice is to obtain new or updated appraisals on the loans subject to initial impairment review and then to generally update on an annual basis thereafter. The Company discounts the appraisal amount as necessary for selling costs and past due real estate taxes. If a new or updated appraisal is not available at the time of a loan’s impairment review, the Company typically applies a discount to the value of an old appraisal to reflect the property’s current estimated value if there is believed to be deterioration in either (i) the physical or economic aspects of the subject property or (ii) any market conditions. These discounts are developed by the Company’s Chief Credit Officer. The results of the impairment review results in an increase in the allowance for loan loss or in a partial charge-off of the loan, if warranted. Impaired loans that are collateral dependent are classified within Level 3 of the fair value hierarchy when impairment is determined using the fair value method based on current appraisals.

 

Other Real Estate Owned

 

Other real estate owned (“OREO”) is carried at the lower of fair value at acquisition date or current estimated fair value, less estimated cost to sell when the real estate is acquired. Estimated fair value of OREO is based on appraisals or evaluations. OREO is classified within Level 3 of the fair value hierarchy. Appraisals of OREO are obtained when the real estate is acquired and subsequently as deemed by the Company’s Chief Credit Officer. Appraisals are reviewed for accuracy and consistency by the Chief Credit Officer. Appraisers are selected from the list of approved appraisers maintained by management.

 

       At March 31, 2015 
       Fair Value Measurements Using 
   Fair             
   Value   Level 1   Level 2   Level 3 
                 
Impaired loans (collateral dependent)  $496    -    -   $496 
Other real estate owned   1,363    -    -    1,363 

 

       At December 31, 2014 
       Fair Value Measurements Using 
   Fair             
   Value   Level 1   Level 2   Level 3 
                 
Impaired loans (collateral dependent)  $858    -    -   $858 
Other real estate owned   1,451    -    -    1,451 

 

21
 

 

The following table presents quantitative information about unobservable inputs in recurring and nonrecurring Level 3 fair value measurements:

 

    As of March 31, 2015
   Fair   Valuation  Unobservable   
   Value   Technique  Inputs  Range
Impaired loans (collateral dependent)  $1,112   Market comparable properties  Marketability discount  1% - 20%
Weighted Avg. 10%
               
Other real estate owned  $1,363   Fair value appraisals  Marketability discount  2% - 25%
Weighted Avg. 12%

 

 

    As of December 31, 2014
   Fair   Valuation  Unobservable   
   Value   Technique  Inputs  Range
Impaired loans (collateral dependent)  $858   Market comparable properties  Marketability discount  2.3% - 36.0%
Weighted Avg. 15%
               
Other real estate owned  $1,451   Fair value appraisals  Marketability discount  2.5% - 40.0% Weighted Avg. 18%

  

The following table presents estimated fair values of the Company’s financial instruments and the level within the fair value hierarchy in which the fair value measurements fall at March 31, 2015:

 

       At March 31, 2015 
       Fair Value Measurements Using 
   Carrying             
   Amount   Level 1   Level 2   Level 3 
Financial assets                    
Cash and cash equivalents  $10,681   $10,681   $-   $- 
Securities available for sale   122,828    19    122,809    - 
Loans receivable, net   180,049    -    -    181,764 
Federal Home Loan Bank stock   1,119    -    1,119    - 
Interest receivable   998    -    998    - 
                     
Financial liabilities                    
Deposits   305,593    -    305,351    - 
Federal Home Loan Bank advances   2,000    -    2,017    - 
Subordinated debentures   3,609    -    -    1,302 
Interest payable   92    -    92    - 

  

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The following table presents estimated fair values of the Company’s financial instruments and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2014:

 

       At December 31, 2014 
       Fair Value Measurements Using 
   Carrying             
   Amount   Level 1   Level 2   Level 3 
Financial assets                    
Cash and cash equivalents  $23,615   $23,615   $-    - 
Securities available for sale   105,985    15    105,970    - 
Loans receivable, net   182,573    -    -    184,044 
Federal Home Loan Bank stock   1,119    -    1,119    - 
Interest receivable   1,058    -    1,058    - 
                     
Financial liabilities                    
Deposits   305,421    -    305,333    - 
Federal Home Loan Bank advances   2,000    -    2,023    - 
Subordinated debentures   3,609    -    -    1,293 
Interest payable   93    -    93    - 

 

The methods and assumptions used to estimate fair value are described as follows:

 

Carrying amount is the estimated fair value for cash and cash equivalents, interest-bearing time deposits, loans held for sale, Federal Home Loan Bank stock, interest receivable and payable, deposits due on demand, variable rate loans and other borrowings. Security fair values are based on market prices or dealer quotes and, if no such information is available, on the rate and term of the security and information about the issuer. For fixed rate loans and time deposits, fair value is based on discounted cash flows using current market rates applied to the estimated life and credit risk. Fair values for impaired loans are estimated using a discounted cash flow analysis or underlying collateral values. The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, savings, NOW and money market accounts, is equal to the carrying amount. There is, however, additional value to the deposits of the Company, a significant portion of which has not been recognized in the consolidated financial statements. This value results from the cost savings of these core-funding sources versus obtaining higher-rate funding in the market. The fair values of fixed rate Federal Home Loan Bank advances, other borrowings and subordinated debentures are based on current rates for similar financing. The fair value of off-balance-sheet items, which is based on the current fees or cost that would be charged to enter into or terminate such arrangements, is immaterial.

 

While the above estimates are based on management's judgment of the most appropriate factors, there is no assurance that were the Company to have disposed of these items on the respective dates, the fair values would have been achieved, because the market value may differ depending on the circumstances. The estimated fair values at year end should not necessarily be considered to apply at subsequent dates.

 

Other assets and liabilities that are not financial instruments, such as premises and equipment, are not included in the above disclosures. Also, nonfinancial instruments typically not recognized on the balance sheets may have value but are not included in the above disclosures. These include, among other items, the estimated earnings power of core deposits, the trained workforce, customer goodwill, and similar items.

 

NOTE 7 – RECENT ACCOUNTING PRONOUNCEMENTS

 

Accounting Standards Update No. 2014-08- Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity – In April 2014, FASB issued ASU 2014-08. This update seeks to better define the groups of assets which qualify for discontinued operations, in order to ease the burden and cost for preparers and stakeholders. This issue changed “the criteria for reporting discontinued operations” and related reporting requirements, including the provision for disclosures about the “disposal of and individually significant component of an entity that does not qualify for discontinued operations presentation.”

 

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The amendments in this Update are effective for fiscal years beginning after December 15, 2014. Early adoption is permitted only for disposals or classifications as held for sale. The Company adopted the methodologies prescribed by this ASU by the date required, and this ASU did not have a material effect on its financial position or results of operations.

 

Accounting Standards Update No. 2014-09- Revenue from Contracts with Customers – In May 2014, FASB, in joint cooperation with IASB, issued ASU 2014-09. The topic of Revenue Recognition had become broad, with several other regulatory agencies issuing standards which lacked cohesion. The new guidance establishes a “common framework” and “reduces the number of requirements to which an entity must consider in recognizing revenue” and yet provides improved disclosures to assist stakeholders reviewing financial statements.

 

The amendments in this Update are effective for annual reporting periods beginning after December 15, 2016. Early adoption is not permitted. The Company will adopt the methodologies prescribed by this ASU by the date required, and does not anticipate that the ASU will have a material effect on its financial position or results of operations.

 

Accounting Standards Update No. 2014-11- Transfers and Servicing – In June 2014, FASB, issued ASU 2014-11. This update addresses the concerns of stakeholders’ by changing the accounting practices surrounding repurchase agreements. The new guidance changes the “accounting for repurchase-to-maturity transactions and linked repurchase financings to secured borrowing accounting, which is consistent with the accounting for other repurchase agreements.”

 

The amendments in this Update are effective for annual reporting periods beginning after December 15, 2015. Early adoption is prohibited. The Company will adopt the methodologies prescribed by this ASU by the date required, and does not anticipate that the ASU will have a material effect on its financial position or results of operations.

 

Accounting Standards Update No. 2014-12- Compensation – Stock Compensation – In June 2014, FASB, issued ASU 2014-12. This update defines the accounting treatment for share-based payments and “resolves the diverse accounting treatment of those awards in practice.” The new requirement mandates that “a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition.” Compensation cost will now be recognized in the period in which it becomes likely that the performance target will be met.

 

The amendments in this Update are effective for annual periods and interim periods within those annual periods beginning after December 31, 2015. Early adoption is permitted. The Company will adopt the methodologies prescribed by this ASU by the date required, and does not anticipate that the ASU will have a material effect on its financial position or results of operations.

 

NOTE 8 – AGREEMENT AND PLAN OF MERGER

 

On March 2, 2015, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Wintrust Financial Corporation (“Wintrust”), an Illinois corporation, and Wintrust Merger Sub LLC (“Merger Co.”), an Illinois limited liability company and wholly owned subsidiary of Wintrust. The Merger Agreement provides for, subject to the satisfaction or waiver of certain conditions, the acquisition of the Company by Wintrust for aggregate consideration intended to total $42,375,000, subject to certain adjustments as set forth in the Merger Agreement, as described further below. The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, the Company will merge with and into Merger Co. (the “Merger”), with Merger Co. as the surviving corporation in the Merger. The Merger Agreement also provides that, following the approval of certain amendments to the Company’s articles of incorporation by the Company’s stockholders, each outstanding share of the Company’s Series C preferred stock, Series D preferred stock and Series E preferred stock (collectively, the “Company Preferred Stock”) will automatically convert into shares of Company common stock immediately prior to the effective time of the Merger (the “Effective Time”), without any action on the part of the holder (the “Preferred Stock Conversion”). Pursuant to the Merger Agreement, in April 2015, each outstanding and unexercised option to acquire a share of CFS common stock was terminated, cancelled and redeemed by CFS, and no merger consideration will be exchanged therefor.

 

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At the Effective Time, shares of Company common stock outstanding (including shares of Company Preferred Stock which will have been converted into Company common stock in connection with the Preferred Stock Conversion and excluding shares held by the Company and its subsidiary bank and dissenting shares) will be converted into the right to receive the merger consideration, which is intended to be paid approximately 50% in cash and approximately 50% in shares of Wintrust common stock. The total number of shares of Wintrust common stock to be issued to Company stockholders will be calculated by dividing $21,187,500 by the average, calculated for the ten trading day period ending on the second trading day preceding the closing date of the Merger, of the volume-weighted average price of Wintrust’s common stock for each trading day during such period (the “Wintrust Common Stock Price”); provided, however, that if the Wintrust Common Stock Price is less than $42.50, then the number of Wintrust common shares to be issued to Company stockholders will be 498,530, and if the Wintrust Common Stock Price is greater than $52.50, then the number of Wintrust common shares to be issued to Company stockholders shall be 403,572, subject in each case to adjustment as set forth in the Merger Agreement. If the Company fails to achieve a specified adjusted net worth, calculated as set forth in the Merger Agreement, as of the closing, then the aggregate consideration to be paid to Company stockholders shall be reduced dollar-for-dollar by an amount equal to the amount of such shortfall, as set forth in the Merger Agreement.

 

The completion of the Merger is subject to certain closing conditions, including, among others, (i) the receipt of required regulatory approvals and expiration of required regulatory waiting periods; (ii) receipt of requisite approvals by the Company’s stockholders of the Merger and other transactions contemplated in the Merger Agreement, including the Preferred Stock Conversion; (iii) the absence of dissenting stockholders representing greater than 5% of the shares of outstanding common stock of the Company (including shares of Company Preferred Stock which will have been converted into Company common stock in connection with the Preferred Stock Conversion); (iv) the absence of certain litigation or orders; and (v) the filing by the Company with appropriate tax authorities of certain amendments to the Company’s consolidated federal and state income tax returns.

 

The Merger Agreement provides certain termination rights for both Wintrust and the Company and further provides that a termination fee of either $900,000 or $1,750,000, plus documented out-of-pocket expenses and costs not to exceed $325,000, will be payable by the Company upon termination of the Merger Agreement under certain circumstances. The Merger Agreement also provides that a termination fee of $900,000, plus documented out-of-pocket expenses and costs not to exceed $325,000, will be payable by Wintrust upon termination of the Merger Agreement under certain circumstances.

 

Additional information regarding the proposed merger transaction is available in the Registration Statement on Form S-4 filed with the SEC by Wintrust on May 5, 2015, which includes the preliminary proxy statement of the Company.

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis is intended as a review of significant factors affecting the financial condition and results of operations of the Company for the periods indicated. The discussion should be read in conjunction with the Condensed Consolidated Financial Statements and Notes included in this Form 10-Q. In addition to historical information, the following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements that involve risks and uncertainties. The Company’s actual results could differ significantly from those anticipated in these forward-looking statements as a result of certain factors discussed elsewhere in this report.

 

Safe Harbor Statement

 

This report (including information incorporated herein by reference) contains, and future oral and written statements of the Company and its management may contain, forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, with respect to the financial condition, results of operations, plans, objectives, future performance and business of the Company. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of the Company’s management and on information currently available to management, are generally identifiable by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “intend,” “estimate,” “may,” “will,” “would,” “could,” “should” or other similar expressions. Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events.

 

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The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on the operations and future prospects of the Company and its subsidiaries include, but are not limited to, the following:

 

·The strength of the United States economy in general and the strength of the local economies in which the Company conducts its operations which may be less favorable than expected and may result in, among other things, an escalation in problem assets and foreclosures, a deterioration in the credit quality and value of the Company’s assets, especially real estate, which, in turn would likely reduce our customers’ borrowing power and the value of assets and collateral associated with our existing loans;

 

·The effects of, and changes in, federal, state and local laws, regulations and policies affecting banking, securities, insurance and monetary and financial matters;

 

·The failure of assumptions underlying the establishment of our allowance for loan losses, that may prove to be materially incorrect or may not be borne out by subsequent events;

 

·The success and timing of our business strategies and our ability to effectively carry out our business plan;

 

·An inability to meet our liquidity needs;

 

·The effect of changes in accounting policies and practices, as may be adopted from time-to-time by bank regulatory agencies, the Securities and Exchange Commission, the Public Company Accounting Oversight Board, the Financial Accounting Standards Board or other accounting standards setters;

 

·The effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System, inflation, interest rate, market and monetary fluctuations;

 

·The risks of changes in interest rates on the level and composition of deposits, loan demand and the values of loan collateral, securities and interest sensitive assets and liabilities;

 

·The effect of changes to our regulatory ratings or capital levels under the regulatory framework for prompt corrective action or the imposition of additional enforcement action by regulatory authorities upon the Company or its wholly owned subsidiary as a result of our inability to comply with applicable laws, regulations, regulatory orders and agreements;

 

·Our ability to utilize our net deferred tax assets in future periods;

 

·Our ability to effectively manage market risk, credit risk and operational risk;

 

·The ability of the Company to compete with other financial institutions as effectively as the Company currently intends due to increases in competitive pressures in the financial services sector;

 

·The inability of the Company to obtain new customers and to retain existing customers;

 

·The timely development and acceptance of products and services including services, products and services offered through alternative delivery channels such as the Internet;

 

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·Technological changes implemented by the Company and by other parties, including third party vendors, which may be more difficult or more expensive than anticipated or which may have unforeseen consequences to the Company and its customers;

 

·The ability of the Company to develop and maintain secure and reliable electronic systems;

 

·The ability of the Company to retain key executives and employees and the difficulty that the Company may experience in replacing key executives and employees in an effective manner;

 

·Business combinations which may be more difficult or expensive than expected;

 

·The costs, effects and outcomes of existing or future litigation;

 

·The ability of the Company to manage the risks associated with the foregoing as well as anticipated;

 

·Disruption of current plans and operations caused by the announcement and pendency of the proposed Merger;

 

·The potential impact of the announcement and pendency of the proposed Merger on relationships with third parties, including customers, employees and competitors, and the Company’s ability to hire and retain key personnel;

 

·Failure to satisfy closing conditions to the proposed Merger, including failure to obtain applicable regulatory or stockholder approvals in a timely manner or otherwise;

 

·Unanticipated difficulties or expenditures relating to the Merger;

 

·Risks that the businesses will not be integrated successfully or that the combine company will not realize estimated cost savings, synergies and growth or that such benefits may take longer to realize than expected;

 

·Failure to realize anticipated benefits of the combine operations; and

 

·Legal proceedings that may be instituted against the Company and others following announcement of the proposed Merger.

 

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Additional information concerning the Company and its business, including other factors that could materially affect the Company’s financial results, is included in the Company’s filings with the Securities and Exchange Commission, including in the Section entitled “Risk Factors” in this form 10-Q and in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, which was filed with the U.S. Securities and Exchange Commission on March 13, 2015.

 

Overview

 

Community Financial Shares, Inc. (the “Company”) is the holding company for Community Bank- Wheaton/Glen Ellyn (the “Bank”). The Company is headquartered in Glen Ellyn, Illinois and operates four offices in its primary market area, which is comprised of Glen Ellyn, Illinois and Wheaton, Illinois. One location is in Glen Ellyn and three are located in Wheaton.

 

The Company’s principal business is conducted by the Bank and consists of offering a full range of community-based financial services, including commercial and retail banking services.  The profitability of the Company’s operations depends primarily on its net interest income, provision for loan losses, other income, and other expenses.  Net interest income is the difference between the income the Company receives on its loan and securities portfolios and its cost of funds, which consists of interest paid on deposits and borrowings.  The provision for loan losses reflects the cost of credit risk in the Company’s loan portfolio.  Other income consists of service charges on deposit accounts, gains on loan sales, securities gains (losses), and other income.  Other expenses include salaries and employee benefits expenses, as well as occupancy and equipment expenses and other noninterest expenses.

 

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Net interest income is dependent on the amounts and yields of interest-earning assets as compared to the amounts and rates of interest-bearing liabilities.  Net interest income is sensitive to changes in market rates of interest and the Company’s asset/liability management procedures in coping with such changes.  The provision for loan losses is dependent upon management’s assessment of the collectibility of the loan portfolio under current economic conditions.

 

The Merger Agreement

 

On March 2, 2015, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Wintrust Financial Corporation (“Wintrust”), an Illinois corporation, and Wintrust Merger Sub LLC (“Merger Co.”), an Illinois limited liability company and wholly owned subsidiary of Wintrust. The Merger Agreement provides for, subject to the satisfaction or waiver of certain conditions, the acquisition of the Company by Wintrust for aggregate consideration intended to total $42,375,000, subject to certain adjustments as set forth in the Merger Agreement, as described further below. The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, the Company will merge with and into Merger Co. (the “Merger”), with Merger Co. as the surviving corporation in the Merger. The Merger Agreement also provides that, following the approval of certain amendments to the Company’s articles of incorporation by the Company’s stockholders, each outstanding share of the Company’s Series C preferred stock, Series D preferred stock and Series E preferred stock (collectively, the “Company Preferred Stock”) will automatically convert into shares of Company common stock immediately prior to the effective time of the Merger (the “Effective Time”), without any action on the part of the holder (the “Preferred Stock Conversion”). Pursuant to the Merger Agreement, in April 2015, each outstanding and unexercised option to acquire a share of CFS common stock was terminated, cancelled and redeemed by CFS, and no merger consideration will be exchanged therefor.

 

At the Effective Time, shares of Company common stock outstanding (including shares of Company Preferred Stock which will have been converted into Company common stock in connection with the Preferred Stock Conversion and excluding shares held by the Company and its subsidiary bank and dissenting shares) will be converted into the right to receive the merger consideration, which is intended to be paid approximately 50% in cash and approximately 50% in shares of Wintrust common stock. The total number of shares of Wintrust common stock to be issued to Company stockholders will be calculated by dividing $21,187,500 by the average, calculated for the ten trading day period ending on the second trading day preceding the closing date of the Merger, of the volume-weighted average price of Wintrust’s common stock for each trading day during such period (the “Wintrust Common Stock Price”); provided, however, that if the Wintrust Common Stock Price is less than $42.50, then the number of Wintrust common shares to be issued to Company stockholders will be 498,530, and if the Wintrust Common Stock Price is greater than $52.50, then the number of Wintrust common shares to be issued to Company stockholders shall be 403,572, subject in each case to adjustment as set forth in the Merger Agreement. If the Company fails to achieve a specified adjusted net worth, calculated as set forth in the Merger Agreement, as of the closing, then the aggregate consideration to be paid to Company stockholders shall be reduced dollar-for-dollar by an amount equal to the amount of such shortfall, as set forth in the Merger Agreement.

 

The completion of the Merger is subject to certain closing conditions, including, among others, (i) the receipt of required regulatory approvals and expiration of required regulatory waiting periods; (ii) receipt of requisite approvals by the Company’s stockholders of the Merger and other transactions contemplated in the Merger Agreement, including the Preferred Stock Conversion; (iii) the absence of dissenting stockholders representing greater than 5% of the shares of outstanding common stock of the Company (including shares of Company Preferred Stock which will have been converted into Company common stock in connection with the Preferred Stock Conversion); (iv) the absence of certain litigation or orders; and (v) the filing by the Company with appropriate tax authorities of certain amendments to the Company’s consolidated federal and state income tax returns.

 

The Merger Agreement provides certain termination rights for both Wintrust and the Company and further provides that a termination fee of either $900,000 or $1,750,000, plus documented out-of-pocket expenses and costs not to exceed $325,000, will be payable by the Company upon termination of the Merger Agreement under certain circumstances. The Merger Agreement also provides that a termination fee of $900,000, plus documented out-of-pocket expenses and costs not to exceed $325,000, will be payable by Wintrust upon termination of the Merger Agreement under certain circumstances.

 

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Additional information regarding the proposed merger transaction is available in the Registration Statement on Form S-4 filed with the SEC by Wintrust on May 5, 2015, which includes the preliminary proxy statement of the Company.

 

Regulatory Matters

 

As previously disclosed, on January 10, 2014, the Bank received notification from the Federal Deposit Insurance Corporation (the “FDIC”) and the Division of Banking of the Illinois Department of Financial and Professional Regulation (the “IDFPR”) that the Consent Order (the “Order”) issued to the Bank by the FDIC and IDFPR on January 21, 2011 was terminated effective January 10, 2014. The material terms and conditions of the Order were previously disclosed in the Company’s Current Report on Form 8-K filed on January 26, 2011. In connection with the termination of the Order, the Bank agreed to achieve Tier 1 capital at least equal to 8% of total assets and total capital at least equal to 12% of risk-weighted assets. At March 31, 2015 our Tier 1 and total capital ratios were 7.8% and 13.8%, respectively, compared to 7.7% and 13.4% at December 31, 2014, 7.7% and 12.9% at September 30, 2014, 7.2% and 12.5% at June 30, 2014, 7.0% and 12.0% at March 31, 2014, 6.8% and 11.9% at December 31, 2013, 6.8% and 11.4% at September 30, 2013, 6.7% and 11.4% at June 30, 2013, 6.8% and 11.8% at March 31, 2013 and 7.7% and 12.6% at December 31, 2012, respectively.

 

Comparison of Financial Condition at March 31, 2015 and December 31, 2014

 

Total assets at March 31, 2015 were $343.7 million, which represented an increase of $681,000, or 0.2%, compared to $343.0 million at December 31, 2014. The increase in total assets was primarily due to an increase in investment securities. Investment securities increased $16.8 million, or 15.9%, to $122.8 million at March 31, 2015 from $106.0 million at December 31, 2014 primarily as a result of a $9.1 million increase in municipal securities and a $8.2 million increase in U.S. government agency debt securities. Cash and cash equivalents decreased $12.9 million, or 54.8% to $10.7 million at March 31, 2015 from $23.6 million at December 31, 2014. Loans decreased $2.6 million, or 1.4%, to $180.0 million at March 31, 2015 from $182.6 million at December 31, 2014 primarily as a result of the net effect of a $2.4 million decrease in home equity lines of credit, a $1.4 million decrease in commercial real estate loans, a $265,000 decrease in commercial loans and a $905,000 increase in residential real estate loans. The decrease in cash and cash equivalents and loans was partially offset by an increase in investment securities. In addition, foreclosed assets decreased $836,000 to $1.4 million as of March 31, 2015 from $2.2 million as of December 31, 2014. Included in foreclosed assets at March 31, 2015 are nine one-to-four family residences and two parcels of land.

 

Total liabilities at March 31, 2015 were $314.5 million, which represented an increase of $92,000, compared to $314.4 million at December 31, 2014. Federal Home Loan Bank advances remained unchanged at $2.0 million at March 31, 2015 as compared to December 31, 2014. Deposits increased $172,000 to $305.6 million at March 31, 2015 from $305.4 million at December 31, 2014. This increase in deposits primarily consisted of increases in regular savings of $4.0 million, or 5.6%, to $75.2 million at March 31, 2015 from $71.2 million at December 31, 2014 and money market accounts of $1.5 million, or 3.6%, to $45.2 million at March 31, 2015 from $43.7 million at December 31, 2014. These increases were partially offset by decreases in certificates of deposits of $2.4 million, or 3.3%, to $71.9 million at March 31, 2015 from $74.3 million at December 31, 2014 and noninterest-bearing demand deposit accounts of $3.0 million, or 6.6%, to $41.8 million at March 31, 2015 from $44.8 million at December 31, 2014. The percentage of regular savings accounts to total deposits totaled 24.6% at March 31, 2015 and the percentage of certificates of deposit to total deposits decreased to 23.5% at March 31, 2015 from 24.3% at December 31, 2014.

 

Stockholders’ equity increased $589,000, or 2.1%, to $29.2 million at March 31, 2015 from $28.6 million at December 31, 2014. The increase in stockholders’ equity was due to the Company’s $176,000 net income for the three months ended March 31, 2015 and the increase in the Company’s accumulated other comprehensive income of $410,000 to a gain of $150,000 for the three months ended March 31, 2015 due to changes in the fair value of the Company’s available-for-sale investment portfolio.

 

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Comparison of Operating Results for the Three Months Ended March 31, 2015 and 2014

 

General. The Company’s net income for the three months ended March 31, 2015 totaled $176,000 compared to $235,000 for the three months ended March 31, 2014. This represents basic and diluted earnings per share of $0.01 for the three months ended March 31, 2015 and 2014. The decrease in operating results for the three months ended March 31, 2015 is primarily due to the combined effect of a $169,000 decrease in net interest income, a $112,000 decrease in provision for loan losses, a $64,000 decrease in noninterest expense, a $6,000 increase in noninterest income and a $72,000 increase in income tax expense.

 

Net interest income. The following table summarizes interest and dividend income and interest expense for the three months ended March 31, 2015 and 2014.

 

   Three Months Ended March 31, 
   2015   2014   $ Change   % Change 
   (Dollars in thousands) 
Interest and dividend income:                    
Interest and fees on loans  $2,299   $2,548   $(249)   (9.77%)
Securities:                    
Taxable   393    332    61    18.37 
Exempt from federal tax   71    90    (19)   (21.11)
Other interest income   8    16    (8)   (50.00)
Total interest and dividend income   2,771    2,986    (215)   (7.20)
                     
Interest expense:                    
Deposits   277    311    (34)   (10.93)
Federal Home Loan Bank advances and                    
other borrowings   15    27    (12)   (44.44)
Subordinated debentures   17    17    -    - 
Total interest expense   309    355    (46)   (12.96)
Net interest income  $2,462   $2,631   $(169)   (6.42)

 

Average Balance Sheet. The following table sets forth certain information relating to the Company’s average balance sheets and reflects the taxable equivalent yield on average earning assets and cost of average interest-bearing liabilities for the periods indicated. Such yields and costs are derived by dividing interest income or expense by the average balance of assets or liabilities. The average balance sheet amounts for loans include balances for non-accrual loans. The yields and costs include fees that are considered adjustments to yields.

 

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The following table summarizes average balances and annualized tax equivalent average yields or costs for the three months ended March 31, 2015 and 2014.

 

   Three Months Ended March 31, 
   2015   2014 
           Average           Average 
   Average       Yield/   Average       Yield/ 
   Balance   Interest   Cost   Balance   Interest   Cost 
   (Dollars in thousands) 
Interest-earning assets:                              
Taxable securities  $99,644   $393    1.60%  $80,344   $332    1.68%
Tax-exempt securities (1)   14,666    108    2.99    15,379    136    3.59 
Loan receivables (2)   183,172    2,299    5.09    197,445    2,548    5.23 
Interest-bearing deposits,                              
FHLB stock and other   10,650    8    0.31    24,513    16    0.24 
Total interest-earning assets  $308,132    2,808    3.70   $317,681    3,032    3.87 
                               
Interest-bearing liabilities:                              
NOW accounts   72,299    32    0.18    72,741    32    0.18 
Regular savings   72,415    47    0.26    74,435    48    0.26 
Money market accounts   43,731    32    0.29    42,650    30    0.29 
Certificates of deposit   73,578    166    0.92    85,817    201    0.95 
FHLB advances and other   2,687    15    2.34    5,229    27    2.08 
Subordinated debentures   3,609    17    1.89    3,609    17    1.89 
Total interest-bearing liabilities  $268,319    309    0.47   $284,481    355    0.51 
                               
Net interest income/interest rate spread (3)        2,499    3.23%        2,677    3.36%
Less: Taxable equivalent adjustment        37              46      
Net interest income as reported       $2,462             $2,631      
Net interest margin (4)             3.24%             3.36%
Tax equivalent effect             0.05%             0.06%
Net interest margin on a fully tax equivalent basis             3.28%             3.42%

 

(1) Tax-exempt investment income is presented on a fully taxable equivalent basis assuming a 35% tax rate.

(2) Includes fees that are considered adjustments to yield and the average balance of loans receivable includes non-performing loans, interest on which is recognized on a cash basis.

(3) Interest rate spread represents the difference between the average yield on interest earning assets and average cost of interest bearing liabilities and is presented on a fully tax equivalent basis.

(4) Net interest margin represents net interest income as a percentage of average interest earning assets.

 

 

Interest Income. Interest income decreased $215,000 to $2.8 million for the three months ended March 31, 2015. The average tax equivalent yield on interest-earning assets decreased 17 basis points to 3.70% for the three months ended March 31, 2015 from 3.87% for the comparable prior year period. In addition, interest-earning assets decreased $9.6 million to $308.1 million for the three months ended March 31, 2015 from $317.7 million for the comparable prior year period.

 

Interest and fees on loans decreased $249,000, or 9.8%, to $2.3 million for the three months ended March 31, 2015, compared to $2.5 million for the comparable prior year period. This decrease resulted from a decrease in the average balance of loans of $14.2 million to $183.2 million for the three months ended March 31, 2015 from $197.4 million for the comparable prior year period. In addition, the average loan yield decreased 14 basis points to 5.09% for the three months ended March 31, 2015 compared to 5.23% for the three months ended March 31, 2014. Interest on taxable securities increased $61,000 for the three months ended March 31, 2015 compared to the comparable prior year period. This increase is primarily due to an increase in the average balance of taxable securities of $19.3 million to $99.6 million for the three months ended March 31, 2015 from $80.3 million for the comparable prior year period. The increase in the average balance of taxable securities was partially offset by an eight basis point decrease in average yield to 1.60% for the three months ended March 31, 2015 from 1.68% for the comparable prior year period.

 

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Interest Expense. Interest expense decreased by $46,000, or 13.0%, to $309,000 for the three months ended March 31, 2015, from $355,000 for the three months ended March 31, 2014. This decrease resulted from a decrease in the average rate paid on interest bearing liabilities of four basis points to 0.47% for the three months ended March 31, 2015 from 0.51% for the comparable prior year period. In addition, the average balance of interest bearing liabilities decreased $16.2 million to $268.3 million for the three months ended March 31, 2015 from $284.5 million for the comparable prior year period. Interest expense resulting from Federal Home Loan Bank advances, subordinated debentures and other borrowings decreased $12,000 during the three months ended March 31, 2015. The average balance on these borrowings decreased $2.5 million to $2.7 million for the three months ended March 31, 2015 from $5.2 million for the comparable prior year period. In addition, there was an increase in the average cost of these borrowings of eight basis points to 2.08% for the three months ended March 31, 2015 from 2.00% for the comparable period in 2014.

 

Net Interest Income before Provision for Loan Losses. Net interest income before provision for loan losses decreased $169,000, or 6.4%, to $2.5 million for the three months ended March 31, 2015 compared to $2.6 million for the comparable period in 2014. The Company’s tax equivalent net interest margin expressed as a percentage of average interest-earning assets decreased to 3.28% for the three months ended March 31, 2015 as compared to 3.42% for the three months ended March 31, 2014. The average tax equivalent yield on interest-earning assets decreased 17 basis points to 3.70% for the three months ended March 31, 2015 from 3.87% for the comparable period ended March 31, 2014. The average balance of interest earning assets decreased $9.6 million to $308.1 million for the three months ended March 31, 2015 from $317.7 million for the three months ended March 31, 2014. The yield on taxable securities decreased eight basis points to 1.60% for the three months ended March 31, 2015 from 1.68% for the comparable prior year period. The yield on average loans decreased 14 basis points to 5.09% for the three months ended March 31, 2015 from 5.23% for the three months ended March 31, 2014. In addition, there was a four basis point decrease in the cost of average interest-bearing liabilities to 0.47% for the three months ended March 31, 2015 as compared to 0.51% for the comparable 2014 period.

 

Provision for Loan Losses. The Bank’s provision for loan losses decreased $112,000 to $24,000 for the three months ended March 31, 2015 from $136,000 for the comparable period in 2014. The $112,000 decrease in the provision was the result of management’s quarterly analysis of the allowance for loan losses. At March 31, 2015, December 31, 2014 and March 31, 2014, nonperforming loans totaled $1.2 million, $2.4 million and $1.1 million, respectively. At March 31, 2015, the ratio of the allowance for loan losses to nonperforming loans was 201.4% compared to 99.8% at December 31, 2014 and 287.9% at March 31, 2014. The ratio of the allowance to total loans was 1.34%, 1.32% and 1.36%, at March 31, 2015, December 31, 2014 and March 31, 2014, respectively.

 

Nonperforming loans decreased $1.2 million, or 50.4%, to $1.2 million at March 31, 2015 from $2.4 million at December 31, 2014. The largest component of nonperforming loans is home equity lines of credit, which decreased to $655,000, or 54.0% of total nonperforming loans, at March 31, 2015, from $1.1 million, or 41.6% of total nonperforming loans, at December 31, 2014. Nonperforming commercial real estate loans decreased to zero at March 31, 2015 from $823,000 at December 31, 2014. Charge-offs, net of recoveries, totaled $21,000 for the three months ended March 31, 2015 compared to ($72,000) for the three months ended March 31, 2014. Nonperforming loans are loans that are ninety days past due and placed on nonaccrual status. Management continues to take aggressive actions in identifying and disposing of problem credits.

 

The amounts of the provision and allowance for loan losses are influenced by a number of factors, including current economic conditions, actual loss experience, industry trends and other factors, including real estate values in the Company’s market area and management’s assessment of current collection risks within the loan portfolio. Should the local economic climate continue to deteriorate, borrowers may experience increased difficulties paying off loans and the level of non-performing loans, charge-offs, and delinquencies could continue to rise, which would require us to further increase the provision. The allowance for loan losses represents management’s estimate of probable incurred losses based on information available as of the date of the financial statements. The allowance for loan losses is based on management’s evaluation of the collectibility of the loan portfolio, including past loan loss experience, known and inherent risks in the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, and economic conditions. Management believes that, based on information available at March 31, 2015, the Bank’s allowance for loan losses was adequate to cover probable incurred losses inherent in its loan portfolio at that time. However, no assurances can be given that the Bank’s level of allowance for loan losses will be sufficient to cover loan losses incurred by the Bank or that future adjustments to the allowance will not be necessary if economic or other conditions differ substantially from the economic and other conditions used by management to determine the current level of the allowance. In addition, the FDIC and IDFPR, as an integral part of their examination processes, periodically review the Bank’s allowance for loan losses and may require the Bank to make additional provisions for estimated loan losses based upon judgments different from those of management.

 

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Noninterest Income

 

    Three Months Ended March 31,  
    2015     2014     $ Change     % Change  
    (Dollars in thousands)  
Non-interest income:                                
Service charges on deposit accounts   $ 80     $ 83     $ (3 )     (3.61 %)
Gain on sale of loans     106       112       (6 )     (5.36 )
Gain on sale of assets     11       -       11       -  
Loss on sale of foreclosed assets     (22 )     (21 )     (1 )     4.76  
Other non-interest income     235       230       5       2.17  
Total non-interest income   $ 410     $ 404     $ 6       1.49  

 

Noninterest income totaled $410,000 and $404,000 for the three months ended March 31, 2015 and 2014, respectively. Gain on sale of loans decreased $6,000 to $106,000 for the three months ended March 31, 2015 from $112,000 for the comparable prior year period. Loss on sale of foreclosed assets decreased $1,000 to $22,000 for the three months ended March 31, 2015 as compared to the prior year period. Other non-interest income increased $5,000 to $235,000 for the three months ended March 31, 2015 from $230,000 for the comparable prior year period.

 

Noninterest Expense

 

   Three Months Ended March 31, 
   2015   2014   $ Change   % Change 
(Dollars in thousands)                
Non-interest expenses:                    
Salaries and employee benefits  $1,323   $1,450   $(127)   (8.76%)
Net occupancy and equipment expense   311    356    (45)   (12.64)
Data processing expense   253    245    8    3.27 
Advertising and promotions   31    38    (7)   (18.42)
Professional fees   381    198    183    92.42 
FDIC insurance premiums   75    135    (60)   (44.44)
Other real estate owned expenses   28    48    (20)   (41.67)
Other operating expenses   198    194    4    2.06 
Total non-interest expenses  $2,600   $2,664   $(64)   (2.40)

  

Noninterest expense decreased by $64,000 to $2.6 million for the three months ended March 31, 2015 from $2.7 million for the comparable prior year period. Professional fees increased $183,000, or 92.4%, to $381,000 for the three months ended March 31, 2015 from $198,000 for the comparable prior year period. This increase is primarily due to legal costs associated with the Company’s previously announced proposed merger with Wintrust. FDIC insurance premiums decreased $60,000, or 44.4%, to $75,000 for the three months ended March 31, 2015 compared to $135,000 for the prior year period. Other real estate owned expenses decreased to $28,000 for the three months ended March 31, 2015 compared to $48,000 for the comparable prior year period. Data processing expenses increased $8,000, or 3.3%, to $253,000 for the three months ended March 31, 2015 from $245,000 for the three months ended March 31, 2014. Occupancy expenses decreased $45,000, or 12.6%, to $311,000 for the three months ended March 31, 2015 from $356,000 for the three months ended March 31, 2014. This decrease is primarily due to lower real estate taxes. Advertising expenses decreased $7,000 to $31,000 for the three months ended March 31, 2015 compared to the prior year period. Salaries and employee benefits expenses decreased by $127,000, or 8.8%, to $1.3 million for the three months ended March 31, 2015 compared to $1.4 million for the comparable prior year period. This decrease is primarily due to a lower level of full-time equivalents as the Bank gained efficiencies as the result of a core processing conversion completed in 2013. Management continues to emphasize the importance of expense management and control in order to continue to provide expanded banking services to its market

 

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Income Tax Expense. The Company recorded income tax expense of $72,000 on $248,000 in pre-tax income for the three months ended March 31, 2015. Income tax expense totaled zero for the three months ended March 31, 2014. As of March 31, 2014 the Company’s deferred tax assets related to net operating losses were fully reserved. Under generally accepted accounting principles, income tax benefits and the related tax assets may only be allowed to be recognized if they will more likely than not be fully utilized.

 

Critical Accounting Policies

 

The accounting and reporting policies of the Company are in accordance with accounting principles generally accepted in the United States and conform to general practices within the banking industry. The Company’s significant accounting policies are described in detail in the notes to the consolidated financial statements included in the Company’s Form 10-K for the year ended December 31, 2014, which was filed with the U.S. Securities and Exchange Commission on March 13, 2015. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. The financial position and results of operations can be affected by these estimates and assumptions and are integral to the understanding of reported results. Critical accounting policies are those policies that management believes are the most important to the portrayal of the Company’s financial condition and results, and they require management to make estimates that are difficult, subjective, or complex.

 

Allowance for Credit Losses. The allowance for credit losses provides coverage for probable losses inherent in the Company’s loan portfolio. Management evaluates the adequacy of the allowance for credit losses each quarter based on changes, if any, in underwriting activities, the loan portfolio composition (including product mix and geographic, industry or customer-specific concentrations), trends in loan performance, regulatory guidance and economic factors. This evaluation is inherently subjective, as it requires the use of significant management estimates. Many factors can affect management’s estimates of specific and expected losses, including volatility of default probabilities, rating migrations, loss severity and economic and political conditions. The allowance is increased through provisions charged to operating earnings and reduced by net charge-offs.

 

The Company determines the amount of the allowance based on relative risk characteristics of the loan portfolio. The allowance recorded for commercial loans is based on reviews of individual credit relationships and an analysis of the migration of commercial loans and actual loss experience. The allowance recorded for homogeneous consumer loans is based on an analysis of loan mix, risk characteristics of the portfolio, fraud loss and bankruptcy experiences, and historical losses, adjusted for current trends, for each homogeneous category or group of loans. The allowance for credit losses relating to impaired loans is based on the loan’s observable market price, the collateral for certain collateral-dependent loans, or the discounted cash flows using the loan’s effective interest rate.

 

Regardless of the extent of the Company’s analysis of customer performance, portfolio trends or risk management processes, certain inherent but undetected losses are probable within the loan portfolio. This is due to several factors including inherent delays in obtaining information regarding a customer’s financial condition or changes in their unique business conditions, the judgmental nature of individual loan evaluations, collateral assessments and the interpretation of economic trends. Volatility of economic or customer-specific conditions affecting the identification and estimation of losses for larger non-homogeneous credits and the sensitivity of assumptions utilized to establish allowances for homogenous groups of loans are among other factors. The Company estimates a range of inherent losses related to the existence of these exposures. The estimates are based upon the Company’s evaluation of imprecision risk associated with the commercial and consumer allowance levels and the estimated impact of the current economic environment.

 

Valuation of Securities. The Company’s available-for-sale security portfolio is reported at fair value. The fair value of a security is determined based on quoted market prices. If quoted market prices are not available, fair value is determined based on quoted prices of similar instruments. Available-for-sale securities are reviewed quarterly for possible other-than-temporary impairment. The review includes an analysis of the facts and circumstances of each individual investment such as the length of time the fair value has been below cost, the expectation for that security’s performance, the credit worthiness of the issuer and the Company’s ability to hold the security to maturity. A decline in value that is considered to be other-than-temporary is recorded as a loss within other operating income in the consolidated statement of income.

 

34
 

 

Liquidity and Capital Resources

 

The Company's primary sources of funds are deposits, FHLB advances, and proceeds from principal and interest payments on loans and securities. While maturities, and scheduled amortization of loans and securities, and calls of securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions, and competition. The Company generally manages the pricing of its deposits to be competitive and to increase core deposit relationships.

 

Liquidity management is both a daily and long-term responsibility of management. The Company adjusts its investments in liquid assets based upon management's assessment of (i) expected loan demand, (ii) expected deposit flows, (iii) yields available on interest-earning deposits and securities, and (iv) the objectives of its asset/liability management program. Excess liquid assets are invested generally in interest-earning overnight deposits and short- and intermediate-term U.S. government and agency obligations.

 

The Company's most liquid assets are cash and short-term investments. The levels of these assets are dependent on the Company's operating, financing, lending, and investing activities during any given year. The Company has other sources of liquidity if a need for additional funds arises, including securities maturing within one year and the repayment of loans. The Company may also utilize the sale of securities available for sale, federal funds lines of credit from correspondent banks, and borrowings from the Federal Home Loan Bank of Chicago.

 

The Company is a separate legal entity from the Bank and must provide for its own liquidity. In addition to its operating expenses, the Company is responsible for paying any dividends declared to its shareholders. The Company’s primary source of funds is dividends received from the Bank. The amount of dividends that the Bank may declare and pay to the Company is generally restricted under applicable law to net profits in the current year plus those for the previous two years. At March 31, 2015, the Company had liquid assets of $2.7 million.

 

Contractual Obligations

 

The following table discloses contractual obligations of the Company as of March 31, 2015:

 

    Payments Due By Year  
(Dollars in Thousands)   2015     2016     2017     2018     2019     and after     Total  
Federal Home Loan Bank                                                        
advances   $ 2,000     $ -     $ -     $ -     $ -     $ -     $ 2,000  
Subordinated debentures     -       -       -       -       -       3,609       3,609  
Data Processing (1), (2)     495       660       660       660       660       1,320       4,455  
Total   $ 2,495     $ 2,660     $ 660     $ 660     $ 660     $ 4,929     $ 10,064  

 

(1)Estimated contract amount based on transaction volume. Actual expense was $695,000 and $1.0 million in 2014 and 2013, respectively.
(2)A new contract was signed and is effective until October 14, 2020.

 

Off-balance-sheet Arrangements

 

In the normal course of operations, we engage in a variety of financial transactions that, in accordance with U.S. generally accepted accounting principles, are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments, letters of credit and lines of credit. For information about our loan commitments and unused lines of credit, see Note 14 of the notes to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the SEC on March 13, 2015. We currently have no plans to engage in hedging activities in the future. For the year ended December 31, 2014 and for the three months ended March 31, 2015, we engaged in no off-balance-sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.

 

35
 

 

Impact of Inflation and Changing Prices

 

The financial statements and related data presented herein have been prepared in accordance with accounting principles generally accepted in the United States of America, which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on the operations of the Company is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates, generally, have a more significant impact on a financial institution’s performance than does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

 

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Interest Rate Risk

 

For a discussion of the potential impact of interest rate changes upon the market value of the Company’s portfolio equity, see Item 7A in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. Management, as part of its regular practices, performs periodic reviews of the impact of interest rate changes upon net interest income and the market value of the Company’s portfolio equity. Based on, among other factors, such reviews, management believes that there have been no material changes in the market risk of the Company’s asset and liability position since December 31, 2014.

 

ITEM 4: CONTROLS AND PROCEDURES

 

The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the Securities and Exchange Commission (the “SEC”) (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. In addition, based on that evaluation, no change in the Company’s internal control over financial reporting occurred during the three months ended March 31, 2015 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

36
 

 

PART II

 

ITEM 1.LEGAL PROCEEDINGS

 

There are no material pending legal proceedings to which the Company or its subsidiaries are a party other than ordinary routine litigation incidental to their respective businesses.

 

ITEM 1A.RISK FACTORS

 

There are no material changes to the risk factors disclosed in the Company’s Form 10-K for the year ended December 31, 2014.

 

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None

 

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

 

None

 

ITEM 4.MINE SAFETY DISCLOSURES

 

Not applicable

 

ITEM 5.OTHER INFORMATION

 

None

 

ITEM 6.EXHIBITS

 

  2.1 Agreement and Plan of Merger dated as of March 2, 2015 Wintrust Financial Corporation, Wintrust Merger Sub LLC and Community Financial Shares, Inc. (1)
     
  3.1 Articles of Incorporation of Community Financial Shares, Inc. (2)
     
  3.2 Bylaws of Community Financial Shares, Inc. (2)
     
  4.1 Form of Common Stock Certificate of Community Financial Shares, Inc. (3)
     
  4.2 Form of Stock Certificate for Series C Convertible Noncumulative Perpetual Preferred Stock of Community Financial Shares, Inc. (3)
     
  4.3 Form of Stock Certificate for Series D Convertible Noncumulative Perpetual Preferred Stock of Community Financial Shares, Inc. (3)
     
  4.4 Form of Stock Certificate for Series E Convertible Noncumulative Perpetual Preferred Stock of Community Financial Shares, Inc. (3)
     
  31.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a)
     
  31.2 Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a)
     
  32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
    Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
  32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted
    Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
  101.0 The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter
    ended March 31, 2015, formatted in XBRL (Extensible Business Reporting Language): (i)
    the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the
    Consolidated Statements of Comprehensive Loss, (iv) the Consolidated Statements of
    Shareholders’ Equity, (v) the Consolidated Statements of Cash Flows; and (vi) the Notes to the
    Consolidated Financial Statements.

______________________

(1)Incorporated by reference to the exhibits to the Company’s Current Report on Form 8-K filed on March 2, 2015.
(2)Incorporated by reference to the appendices to the Company’s Definitive Proxy Statement on Schedule 14A filed on April 29, 2013.
(3)Incorporated by reference to the exhibits to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2013.

 

37
 

 

SIGNATURES

 

Pursuant to the requirements 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.

 

  COMMUNITY FINANCIAL SHARES, INC.
  (Registrant)
   
  /s/ Donald H. Wilson
  Donald H. Wilson
  Dated: May 15, 2015
  President and Chief Executive Officer
  (Principal Executive Officer)
   
  /s/ Eric J. Wedeen
  Eric J. Wedeen
  Dated: May 15, 2015
  Chief Financial Officer
  (Principal Financial Officer)

 

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