The Community Financial Corporation Reports Operating Results for the Three Months Ended March 31, 2018

5/2/2018, 9:20 PM (Source: GlobeNewswire)

WALDORF, Md., May 02, 2018 (GLOBE NEWSWIRE) -- The Community Financial Corporation (NASDAQ:TCFC) (the “Company”), the holding company for Community Bank of the Chesapeake (the “Bank”), reported its results of operations for the first quarter ended March 31, 2018. Highlights at and for the three months ended March 31, 2018 (“2018Q1”) include:

Three Month Highlights

  • Completed acquisition of $200 million County First Bank (“County First”) on January 1, 2018, increasing the Company’s asset size to just under $1.6 billion. In January 2018, the Company disclosed its intentions to close four of the five acquired County First branches during the second quarter with the La Plata downtown branch remaining open.
     
  • Gross loans increased 11.3% or $129.6 million from $1,150.0 million at December 31, 2017 (“2017Q4”) to $1,279.7 million at 2018Q1, primarily due to County First.
     
  • Transaction deposit accounts increased from 59% of deposits at 2017Q4 to 63% of deposits at 2018Q1.
     
  • Retention of County First deposit relationships have been successful to date. Acquired deposit balances increased $2.3 million from $199 million at the acquisition date to $201 million at March 31, 2018.  
     
  • Wholesale funding as a percentage of assets decreased from 18.7% at 2017Q4 to 12.5% at 2018Q1. Wholesale funding includes traditional brokered deposits and Federal Home Loan Bank (“FHLB”) advances.
     
  • Classified loans as a percentage of assets decreased 74 basis points from 3.58% at December 31, 2017 to 2.84% at March 31, 2018.
     
  • Non-accrual loans, OREO and TDRs to total assets increased five basis points from 1.71% at December 31, 2017 to 1.76% at March 31, 2018.
     
  • Tier 1 leverage ratio increased to 9.35% compared to 8.77% at December 31, 2017.
     
  • Net income of $1.2 million, or $0.22 per share, compared to a net loss of $459,000, or ($0.10) per share, in the quarter ended December 31, 2017 (“2017Q4”). The Company’s return on average assets (“ROAA”) and return on average common equity (“ROACE”) were 0.31% and 3.33% in 2018Q1 compared to (0.13%) and (1.62%) in the prior quarter. 
     
  • Operating net income1 increased $845,000 (33.7%) to $3.4 million, or $.0.61 per share, compared to $2.5 million, or $0.54 per share, in the prior quarter. The Company’s operating ROAA and operating ROACE were 0.85% and 9.15% in 2018Q1 compared to 0.72% and 8.89% in the prior quarter. 
     
  • Net interest margin increased 25 basis points from 3.29% in 2017Q4 to 3.54% in 2018Q1. Net interest income increased $2.2 million or 20.8%, to $12.4 million in 2018Q1 compared to 10.7 million in 2017Q4.
     
  • Noninterest expense of $11.7 million in 2018Q1 increased $3.9 million compared to $7.7 million in the prior quarter, primarily due to the County First acquisition. Merger and acquisition costs of $2.9 million were recorded in 2018Q1 as well as additional costs related to supporting five operating County First branches. The Company will continue to carry additional noninterest expense in the second and third quarters until the four branch closures are complete and duplicate vendors and processes are discontinued.
     
  • Noninterest expense of $8.8 million in 2018Q1, excluding merger and acquisition costs, increased $1.4 million compared to $7.4 million in the prior quarter due to the impact of County First. These costs reflected management’s expected expense run rate of between $8.9 and $9.1 million for the first two quarters of 2018.
     
  • The GAAP efficiency ratio was 83.81% in 2018Q1 compared to 65.79% in 2017Q4. The Non-GAAP (or “operating”) efficiency ratio2, which excludes merger and acquisition costs, OREO gains and losses and other non-core activities, was 62.39% in 2018Q1 compared to 62.16% in 2017Q4.

“Once our acquisition was approved by our regulators in the fall of 2017, we began diligently working with the County First Board and management to ensure an orderly and smooth transition of our most important resource – our customers,” stated Michael L. Middleton, Chairman of the Board. “After the January closing, our management team seamlessly integrated the various customer delivery platforms into our system. This transaction has deepened our market penetration and positions us for future growth throughout our footprint.”

“Return on average assets and earnings per share improved to 0.31% and $0.22 in the first quarter of 2018 compared (0.13%) and $(0.10) in the fourth quarter. Operating return on average assets and operating earnings per share improved to 0.85% and $0.61 in the first quarter of 2018 from 0.72% and $0.54 in the fourth quarter,” stated William J. Pasenelli, Chief Executive Officer and Vice-Chairman of the Board. “We were very excited to complete our merger on January 1, 2018. Community Bank of the Chesapeake is now even better positioned at $1.6 billion in assets to compete in the Southern Maryland market given our strong leadership team, experienced bankers, distinctive product capabilities and strong balance sheet.

The improvement in core earnings compared to the prior quarter was the result of increased net interest income and net interest margin, while continuing our focus on expense control. Net interest margin increased 25 basis points to 3.54% in the first quarter of 2018 compared to 3.29% in the fourth quarter of 2017. Net interest margin increased due to the acquisition of low cost transaction deposits and higher yielding loans from County First, the continued trend of higher loan yields on repricing loans and new loans, and the pay down of wholesale funding during the first quarter. The accretion of the purchase accounting fair value mark was $321,000, representing approximately 10 basis points of the net interest margin expansion.

The operating efficiency ratio was stable at 62.39% in the first quarter of 2018 compared to 62.16% in the fourth quarter of 2017. It was encouraging to see top line revenue keeping pace with core operating expenses during the first quarter as we are not expecting to see the full impact of cost savings until the second half of 2018. Management remains focused on controlling expenses and the successful integration of County First customers. We will continue to mitigate the risks that NIM expansion will not continue for the balance of 2018 by focusing on controlling expenses.”

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1 The Company defines operating net income as net income before merger and acquisition costs and the one-time deferred tax adjustment recorded for Tax Cuts and Jobs Act in the three months ended December 31, 2017.  Operating earnings per share, operating return on average assets and operating return on average common equity is calculated using adjusted operating net income. See Non-GAAP reconciliation schedules.

Income Statement – Three Months Ended March 31, 2018

The Company reported net income of $1.2 million, or $0.22 per share, for the three months ended March 31, 2018 (“2018Q1”). This compares to a net loss of $459,000, or ($0.10) per share, for the three months ended December 31, 2017 (“2017Q4”) and net income of $2.3 million, or $0.51 per share, for the three months ended March 31, 2017 (“2017Q1”). The increase in net income from 2017Q4 resulted primarily from the $2.7 million in additional income tax expense booked in the fourth quarter of 2017 from the revaluation of deferred tax assets due to the reduction in the corporate income tax rate under the recently enacted Tax Cuts and Jobs Act.  The decrease in net income from 2017Q1 resulted primarily from $2.9 million in merger-related costs, which included $1.3 million of termination costs of County First’s core processing contract as well as investment banking, legal fees and the costs of employee agreements and severance for terminations that occurred as of the end of the quarter. In addition, the Company will continue to carry additional noninterest expense in the second and third quarters until the four branch closures are complete and duplicate vendors and processes are discontinued. The increase in noninterest expense was partially offset by an increase in net interest income realized from the integrated operations of County First associated with the January 1, 2018 acquisition and from a lower effective tax rate.

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2 The Company maintains GAAP and Non-GAAP measures for net operating expenses and noninterest expenses to calculate Non-GAAP ratios. Adjusted net operating expense and adjusted noninterest expense exclude merger and acquisition costs, OREO gains and losses and expenses, and gains and losses on the sale of investments and other assets not considered part of recurring operations. See Reconciliation of GAAP and Non-GAAP financial measures for the calculation of the below ratios:

Efficiency Ratio - noninterest expense divided by the sum of net interest income and noninterest income.

Net Operating Expense Ratio - noninterest expense less noninterest income divided by average assets.

The Company reported operating net income, which excludes merger-related expenses, of $3.4 million, or $0.61 per share, in 2018Q1. This compares to operating net income of $2.5 million, or $0.54 per share, in 2017Q4 and operating net income of $2.3 million, or $0.51 per share, in 2017Q1. Compared to 2017Q4 and 2017Q1, operating net income reflects higher net interest income and higher noninterest income partially offset by higher noninterest expense, much of which is associated with the acquisition of County First.

Net interest income totaled $12.9 million in 2018Q1, which represents a $2.1 million, or 19.7%, increase from $10.8 million in 2017Q4 and a $2.2 million, or 20.8%, increase from $10.7 million in 2017Q1. Average total earning assets increased $149.0 million, or 11.4%, in 2018Q1 to $1,456.9 million, compared to $1,307.9 million in 2017Q4 and increased $202.4 million, or 16.1%, compared to $1,254.5 million in 2017Q1. The increase in average total earning assets in 2018Q1 from 2017Q4 included an increase in average loans of $141.1 million, or 12.5%, and an increase in average investments of $7.9 million, or 4.5%, primarily as a result of the acquisition of County First. The increase in average total earning assets in 2018Q1 from 2017Q1 resulted primarily from a $191.0 million, or 17.6%, increase in average loans as a result of organic growth and the acquisition of County First and a $11.4 million, or 6.6%, increase in average investments.

Net interest margin was 3.54% in 2018Q1, representing a 25 basis point increase from 3.29%. The increase in net interest margin from 2017Q4 resulted primarily from a 19 basis point increase in yield on loans to 4.63%, driven by several quarters of increasing contractual repricing on the Company’s legacy portfolio, the recognition of the acquired performing fair value mark related to the acquisition of County First loans and the addition of higher yielding loans from County First. Additionally, net interest margin was positively impacted by the acquisition of County First’s lower cost transaction deposit accounts and the pay down of wholesale funding with County First cash and the sale of securities in January 2018. The Company’s cost of funds decreased four basis points from 0.88% in 2017Q4 to 0.84% in 2018Q1. During 2018Q1, the County First acquisition and the management of funding more than offset increased rates on deposit accounts and wholesale funding due to the Federal Reserve’s actions to raise short-term interest rates.

Net interest margin of 3.54% was 14 basis points higher than the 3.40% in 2017Q1. The increase in net interest margin from 2017Q1 resulted primarily from a 21 basis point increase in yield on loans, due primarily to higher contractual interest rates on new and repricing loans, the recognition of the acquired performing fair value mark related to County First and the addition of higher yielding loans from the County First acquisition. These increases were partially offset by a decrease in margin due to a 17 basis point increase in the cost of interest-bearing liabilities.  The Company’s cost of funds increased 10 basis points from 0.74% in 2017Q1 to 0.84% in 2018Q1.

Noninterest income of $1.0 million in 2018Q1 increased by $31,000 compared to 2017Q4 and by $151,000 compared to 2017Q1.  The increase in noninterest income was primarily due to additional service charge income from the acquisition of County First’s deposit relationships and from the monthly income earned from approximately $6.3 million of Bank Owned Life Insurance acquired in the transaction.

Noninterest expenses increased $3.9 million, or 50.6%, to $11.7 million in 2018Q1 compared to $7.8 million in 2017Q4, and increased $4.3 million, or 58.1%, compared to $7.4 million in 2017Q1. Adjusted noninterest expense, which excludes merger-related expenses and OREO related expenses increased $1.4 million, or 19.2%, to $8.7 million in 2018Q1 compared to $7.3 million in 2017Q4, and increased $1.5 million, or 21.2%, compared to $7.2 million in 2017Q1. Overall the increases in adjusted noninterest expenses comparing 2018Q1 to 2017Q4 and 2017Q1 were due primarily to increases in salary and employee benefits due to the addition of County First employees. Other increases from the comparable periods were to occupancy expense, data processing expense, core deposit intangible amortization, advertising expense and FDIC insurance expense, all of which were due primarily to the acquisition of County First. The Company has scheduled the closing of four of the five acquired branches in May 2018 with a positive impact on the Company’s expense run rate expected in the second half of 2018 due to lower overhead.

The Company’s GAAP efficiency ratio was 83.81% in 2018Q1 compared to 65.79% in 2017Q4 and 63.89% in 2017Q1. The operating efficiency ratio, which excludes merger and acquisition costs, OREO gains and losses and other non-core activities, was 62.39% and 62.16% and 62.20% for the same comparable periods. The Company’s GAAP net operating expense ratio was 2.69% in 2018Q1 compared to 1.93% in 2017Q4 and 1.94% in 2017Q1. The Non-GAAP net operating expense ratio, which excludes merger and acquisition costs, investment gains and losses, OREO gains and losses and other non-core activities, was 1.94% and 1.81% and 1.89% for the same comparable periods. The following is a summary breakdown of noninterest expense:

  Three Months Ended    
(dollars in thousands) March 31, 2018 December 31, 2017  $ Change  % Change 
Salary and employee benefits $  5,047 $  4,191 $  856  20.4%
OREO Valuation Allowance and Expenses    114    123    (9) (7.3%)
Merger and acquisition costs    2,868    335    2,533  756.1%
Operating Expenses    3,638    3,097    541  17.5%
Total Noninterest Expense $  11,667 $  7,746 $  3,921  50.6%


  Three Months Ended March 31,    
(dollars in thousands)  2018  2017  $ Change  % Change 
Salary and employee benefits $  5,047 $  4,313 $  734  17.0%
OREO Valuation Allowance and Expenses    114    195    (81) (41.5%)
Merger and acquisition costs    2,868    17    2,851  n/a 
Operating Expenses    3,638    2,854    784  27.5%
Total Noninterest Expense $  11,667 $  7,379 $  4,288  58.1%
              

The Company’s consolidated effective tax rate was 30.4% in 2018Q1, due to lower tax rates enacted with the passage of the Tax Cut and Jobs Act of 2017 partially offset by certain non-deductible merger-related expenses, true-ups to deferred tax assets and holding company expenses that are not deductible for state tax purposes. The Company’s normal effective rate as of March 31, 2018 was 27.52% (19.27% for federal; 8.25% for state). The Company’s consolidated effective tax rate was 111.48% in 2017Q4 due to $2.7 million in additional income tax expense from the revaluation of deferred tax assets as a result of the reduction in the corporate income tax rate of the Tax Cuts and Jobs Act and 38.2% in 2017Q1.  

Balance Sheet
Total assets increased $171.0 million, or 12.2%, to $1.6 billion at 2018Q1 compared to total assets of $1.4 billion at 2017Q4 primarily as a result of the acquisition of County First. Cash and cash equivalents increased $19.0 million, or 123.5%, to $34.5 million and total securities increased $1.7 million, to $169.2 million. Gross loans increased 11.3% or $129.6 million from $1,150.0 million at 2017Q4 to $1,279.7 million at 2018Q1, primarily due to the merger.  The Bank acquired $144.1 million of County First principal loan balances on January 1, 2018. During the first quarter of 2018, there were several County First relationships that the Company encouraged to seek other financing. This contributed to a decrease in the first quarter of $12.3 million in acquired principal balances. Net growth of the Bank’s legacy portfolio was $781,000 with commercial real estate growing $17.4 million at an annual rate of 9.6%, substantially offset by payoffs of other commercial legacy loans primarily from customer sales of underlying collateral.

The acquisition of County First led to a slight shift in loan mix at 2018Q1 compared to 2017Q4. The combination of commercial and industrial and owner-occupied real estate loans increased $21 million from $378 million (33% of loans) at 2017Q1 to $399 million (31% of loans) at 2018Q1. Regulatory concentrations for non-owner occupied commercial real estate and construction decreased from 309.6% and 65.5% at 2017Q4 to 294.2% and 65.3% at 2018Q1. The following is a breakdown of the Company’s loan portfolio at March 31, 2018 and December 31, 2017:

           
  (Unaudited)   *    
BY LOAN TYPE March 31, 2018 % December 31, 2017 %  
           
Commercial real estate $  817,576 63.88% $  727,314 63.25%  
Residential first mortgages    166,390 13.00%    170,374 14.81%  
Residential rentals    129,026 10.08%    110,228 9.58%  
Construction and land development    28,226 2.21%    27,871 2.42%  
Home equity and second mortgages    39,481 3.09%    21,351 1.86%  
Commercial loans    52,198 4.08%    56,417 4.91%  
Consumer loans    853 0.07%    573 0.05%  
Commercial equipment     45,905 3.59%    35,916 3.12%  
Gross loans    1,279,655 100.00%    1,150,044 100.00%  
Net deferred costs (fees)    1,118 0.09%    1,086 0.09%  
Total loans, net of deferred costs $  1,280,773   $  1,151,130    
           
* Derived from audited financial statements.          
           

In terms of accounting designations, compared to 2017Q4: (i) non-acquired loans, which include certain renewed and/or restructured acquired performing loans that are re-designated as non-acquired, increased $4.1 million, or 3.6%, to $1,154.2 million; (ii) acquired performing loans increased $121.6 million to $121.6 million; and (iii) purchase credit impaired (“PCI”) loans increased $3.9 million to $3.9 million. At 2018Q1 performing acquired loans, which totaled $121.6 million, included a $2.3 million net acquisition accounting fair market value adjustment, representing a 1.87% “mark;” and PCI loans which totaled $3.9 million, included a $666,000 adjustment, representing a 14.68% “mark.”

Total deposits increased $179.7 million, or 16.2%, to $1,285.9 million at 2018Q1, compared to $1,106.2 million at 2017Q4 due primarily to the acquisition of County First. Noninterest bearing demand deposits increased $69.8 million, or 43.7%, to $229.6 million (17.9% of total deposits). The Company uses both traditional and reciprocal brokered deposits. Traditional brokered deposits were $100.2 million at 2018Q1 compared to $118.9 million at 2017Q4. Reciprocal brokered deposits are used to maximize FDIC insurance available to our customers. Reciprocal brokered deposits were $99.9 million at 2018Q1 compared to $92.9 million at 2017Q4.  Transaction deposit accounts increased $152.8 million from $654.6 million (59% or deposits) at 2017Q4 to $807.5 million (63% of deposits) at 2018Q1. This contributed to deceasing the Bank’s cost of funds four basis points from 0.88% in 2017Q4 to 0.84% in 2018Q1.

FHLB long-term debt and short-term borrowings (“FHLB advances”) decreased $46.0 million, or 32.2%, to $97.0 million at 2018Q1 compared to $143.0 million at 2017Q4. Wholesale funding, which includes traditional brokered deposits and FHLB advances, decreased $64.7 million from $261.9 million (18.7% of assets) at 2017Q4 to $197.2 million (12.5% of assets) at 2018Q1. Cash and the sale of securities from the County First acquisition were used to pay down debt and brokered deposits. The Company uses brokered deposits and other wholesale funding to supplement funding when loan growth exceeds core deposit growth and for asset-liability management purposes.

Total stockholders’ equity increased $35.7 million, or 32.5%, to $145.7 million at 2018Q1 compared to $110.0 million at 2017Q4. This increase primarily resulted from the issuance of 918,526 shares of common stock, valued at $35.6 million (based on the $38.78 per share closing price on the last trading day prior to consummation), as the stock component of the merger consideration paid in the County First acquisition. The Company’s ratio of tangible common equity to tangible assets increased to 8.44% at 2018Q1 from 7.82% at 2017Q43. The Company’s Common Equity Tier 1 (“CET1”) ratio was 10.31% at 2018Q1 compared to 9.51% at 2017Q4. The Company remains well capitalized with a Tier 1 capital to average assets (leverage ratio) of 9.35% at 2018Q1 compared to 8.79% at 2017Q4.

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3 The Company had no intangible assets prior to January 1, 2018. Therefore, tangible common equity and tangible assets were the same as common equity and total assets.

Asset Quality
The Company continues to pursue its approach of maximizing contractual rights with individual classified customer relationships. The objective is to expeditiously resolve on-performing or substandard credits that are not likely to become performing or passing credits in a reasonable timeframe. Management believes this strategy is in the best long-term interest of the Company.

Non-accrual loans and OREO to total assets increased from 1.00% at 2017Q4 to 1.13% at 2018Q1.  Non-accrual loans, OREO and TDRs to total assets increased $3.7 million from $24.1 million or 1.71% at 2017Q4 to $27.8 million or 1.76% at 2018Q1. The $3.7 million increase in non-accrual balances was principally due to two well-secured commercial customer relationships that became non-accrual in 2018Q1. The first relationship is a $2.3 million in loans with short-term operational cash flow shortfalls that may be addressed with additional working capital provided by an investor. For the second relationship, in 2018Q1, the Bank charged-off $200,000 of a $2.1 million dollar loan to adjust the loan’s carrying value to the fair value of the collateral, which is a property awaiting the court’s foreclosure ratification. The property was purchased at the foreclosure auction by a third party with no financing being provided by the Bank.

Classified assets decreased $5.6 million from $50.3 million at 2017Q4 to $44.7 million at 2018Q1. Management considers classified assets to be an important measure of asset quality. The following is a breakdown of the Company’s classified and special mention assets at March 31, 2018 and December 31, 2017, 2016, 2015 and 2014, respectively:

                
                
 Classified Assets and Special Mention Assets   
 (dollars in thousands) As of
March 31, 2018
 As of
December 31, 2017
 As of
December 31, 2016
 As of
December 31, 2015
  As of
December 31, 2014
   
 Classified loans              
 Substandard $  34,772  $  40,306  $  30,463  $  31,943   $  46,735    
 Doubtful    -     -     137     861      -    
 Loss    -     -     -     -      -    
 Total classified loans    34,772     40,306     30,600     32,804      46,735    
 Special mention loans    2,033     96     -     1,642      5,460    
 Total classified and special mention loans $  36,805  $  40,402  $  30,600  $  34,446   $  52,195    
                
 Classified loans    34,772     40,306     30,600     32,804      46,735    
 Classified securities    612     651     883     1,093      1,404    
 Other real estate owned    9,352     9,341     7,763     9,449      5,883    
 Total classified assets $  44,736  $  50,298  $  39,246  $  43,346   $  54,022    
                
 Total classified assets as a
  percentage of total assets
  2.84%  3.58%  2.94%  3.79%   4.99%   
 Total classified assets as a
  percentage of Risk Based Capital
  24.81%  32.10%  26.13%  30.19%   39.30%   
                

The company reported a $500,000 provision for loan loss expense in 2018Q1 compared to $30,000 of provision recorded in 2017Q4, and a provision of $380,000 in 2017Q1. Allowance for loan loss levels decreased to 0.82% of total loans at 2018Q1 compared to 0.91% at 2017Q4 due to the addition of County First loans for which no allowance was provided for in accordance with purchase accounting standards. Net charge-offs of $544,000 were recognized in 2018Q1 compared to net recoveries of $50,000 in 2017Q4, and net charge-offs of $131,000 in 2017Q1. Management’s determination of the adequacy of the allowance is based on a periodic evaluation of the portfolio with consideration given to: overall loss experience; current economic conditions; size, growth and composition of the loan portfolio; financial condition of the borrowers; current appraised values of underlying collateral and other relevant factors that, in management’s judgment, warrant recognition in determining an adequate allowance. Improvements to baseline charge-off factors for the periods used to evaluate the adequacy of the allowance as well as improvements in some qualitative factors, such as slower portfolio growth, were offset by increases in other qualitative factors. The specific allowance is based on management’s estimate of realizable value for particular loans. Management believes that the allowance is adequate.

About The Community Financial Corporation -  Headquartered in Waldorf, MD, The Community Financial Corporation is the bank holding company for Community Bank of the Chesapeake, a full-service commercial bank with assets of approximately $1.6 billion.  Through its branch offices and commercial lending centers, Community Bank of the Chesapeake offers a broad range of financial products and services to individuals and businesses.  The Company’s banking centers are located at its main office in Waldorf, Maryland, and branch offices in Waldorf, Bryans Road, Dunkirk, Leonardtown, La Plata, Charlotte Hall, Prince Frederick, Lusby and California, Maryland; and downtown Fredericksburg, Virginia. More information about Community Bank of the Chesapeake can be found at www.cbtc.com.

Use of Non-GAAP Financial Measures - Statements included in this press release include non-GAAP financial measures and should be read along with the accompanying tables, which provide a reconciliation of non-GAAP financial measures to GAAP financial measures.  The Company’s management uses these non-GAAP financial measures, and believes that non-GAAP financial measures provide additional useful information that allows readers to evaluate the ongoing performance of the Company.  Non-GAAP financial measures should not be considered as an alternative to any measure of performance or financial condition as promulgated under GAAP, and investors should consider the Company’s performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company.  Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the results or financial condition as reported under GAAP.

Forward-looking Statements - This news release contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements can generally be identified by the fact that they do not relate strictly to historical or current facts. They often include words like “believe,” “expect,” “anticipate,” “estimate” and “intend” or future or conditional verbs such as “will,” “would,” “should,” “could” or “may.” Statements in this release that are not strictly historical are forward-looking and are based upon current expectations that may differ materially from actual results. These forward-looking statements include, without limitation, those relating to the Company’s and Community Bank of the Chesapeake’s future growth and management’s outlook or expectations for revenue, assets, asset quality, profitability, business prospects, net interest margin, non-interest revenue, allowance for loan losses, the level of credit losses from lending, liquidity levels, capital levels, or other future financial or business performance strategies or expectations, and any statements of the plans and objectives of management for future operations products or services, including the expected benefits from, and/or the execution of integration plans relating to the County First acquisition; plans regarding branch closings or consolidation; any statement of expectation or belief; projections related to certain financial metrics; and any statement of assumptions underlying the foregoing. These forward-looking statements express management’s current expectations or forecasts of future events, results and conditions, and by their nature are subject to and involve risks and uncertainties that could cause actual results to differ materially from those anticipated by the statements made herein.  Factors that might cause actual results to differ materially from those made in such statements include, but are not limited to: the synergies and other expected financial benefits from County First acquisition may not be realized within the expected time frames; costs or difficulties related to integration matters might be greater than expected; general economic trends; changes in interest rates; loss of deposits and loan demand to other financial institutions; substantial changes in financial markets; changes in real estate value and the real estate market; regulatory changes; the possibility of unforeseen events affecting the industry generally; the uncertainties associated with newly developed or acquired operations; the outcome of litigation that may arise; market disruptions and other effects of terrorist activities; and the matters described in “Item 1A Risk Factors” in the Company’s Annual Report on Form 10-K for the Year Ended December 31, 2017, and in its other Reports filed with the Securities and Exchange Commission (the “SEC”). The Company’s forward-looking statements may also be subject to other risks and uncertainties, including those that it may discuss elsewhere in this news release or in its filings with the SEC, accessible on the SEC’s Web site at www.sec.gov. The Company undertakes no obligation to update these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unforeseen events, except as required under the rules and regulations of the SEC.

Data is unaudited as of March 31, 2018. This selected information should be read in conjunction with the financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2017.

CONTACTS: 
William J. Pasenelli, Chief Executive Officer
Todd L. Capitani, Chief Financial Officer
888.745.2265

     
THE COMMUNITY FINANCIAL CORPORATION    
CONSOLIDATED STATEMENTS OF INCOME  (UNAUDITED)  
     
     
  Three Months Ended March 31,
(dollars in thousands, except per share amounts )  2018  2017
Interest and Dividend Income    
  Loans, including fees  $  14,726 $  11,970
  Interest and dividends on investment securities    1,095    946
  Interest on deposits with banks    72    6
Total Interest and Dividend Income    15,893    12,922
     
Interest Expense    
  Deposits    1,956    1,268
  Short-term borrowings    283    147
  Long-term debt    764    833
Total Interest Expense    3,003    2,248
     
Net Interest Income    12,890    10,674
  Provision for loan losses    500    380
Net Interest Income After Provision For Loan Losses     12,390    10,294
     
Noninterest Income    
Loan appraisal, credit, and miscellaneous charges    53    47
Net gains (losses) on sale of OREO    -    27
Income from bank owned life insurance    226    191
Service charges    752    610
Total Noninterest Income    1,031    875
Noninterest Expense    
Salary and employee benefits    5,047    4,313
Occupancy expense    766    653
Advertising    159    108
Data processing expense     683    577
Professional fees    352    320
Merger and acquisition costs    2,868    17
Depreciation of premises and equipment    199    199
Telephone communications    99    51
Office supplies    40    32
FDIC Insurance    198    166
OREO valuation allowance and expenses    114    195
Core deposit intangible amortization    240    -
Other    902    748
Total Noninterest Expense    11,667    7,379
  Income before income taxes    1,754    3,790
  Income tax expense    533    1,448
Net Income $  1,221 $  2,342
     
Earnings Per Common Share    
Basic  $  0.22 $  0.51
Diluted  $  0.22 $  0.51
Cash dividends paid per common share $  0.10 $  0.10
     

 

          
THE COMMUNITY FINANCIAL CORPORATION         
RECONCILIATION OF NON-GAAP MEASURES          
THREE MONTHS ENDED          
           
Reconciliation of US GAAP Net Income, Earnings Per Share (EPS), Return on Average Assets (ROAA) and Return on Average Common Equity  (ROACE) to Non-GAAP Operating Net Income, EPS, ROAA and ROACE
 
This press release, including the accompanying financial statement tables, contains financial information determined by methods other than in accordance with generally accepted accounting principles, or GAAP. This financial information includes certain operating performance measures, which exclude merger and acquisition costs and the fourth quarter 2017 income tax expense attributable to the revaluation of deferred tax assets as a result of the reduction in the corporate income tax rate under the recently enacted Tax Cuts and Jobs Act. These expenses are not considered part of recurring operations, such as “operating net income,”  “operating earnings per share,” “operating return on average assets,” and “operating return on average common equity.” These non-GAAP measures are included because the Company believes they may provide useful supplemental information for evaluating the underlying performance trends of the Company.
           
  (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
(dollars in thousands, except per share amounts) March 31, 2018 December 31, 2017 September 30, 2017 June 30, 2017 March 31, 2017
           
           
Net (loss) income (as reported) $  1,221  $  (459) $  2,782  $  2,543  $  2,342 
Impact of  Tax Cuts and Jobs Act    -     2,740     -     -     - 
Merger and acquisition costs (net of tax)    2,135     230     257     227     10 
Non-GAAP operating net income  $  3,356  $  2,511  $  3,039  $  2,770  $  2,352 
           
           
Income before income taxes (as reported) $  1,754  $  3,997  $  4,499  $  4,079  $  3,790 
Merger and acquisition costs ("M&A")    2,868     335     239     238     17 
Adjusted pretax income    4,622     4,332     4,738     4,317     3,807 
Income tax expense    1,266     1,821     1,699     1,547     1,455 
Non-GAAP operating net income  $  3,356  $  2,511  $  3,039  $  2,770  $  2,352 
           
GAAP diluted earnings per share ("EPS") $  0.22  $  (0.10) $  0.60  $  0.55  $  0.51 
Non-GAAP operating diluted EPS before M&A $  0.61  $  0.54  $  0.66  $  0.60  $  0.51 
           
GAAP return on average assets ("ROAA")   0.31%  -0.13%  0.80%  0.74%  0.70%
Non-GAAP operating ROAA before M&A  0.85%  0.72%  0.87%  0.81%  0.70%
           
GAAP return on average common equity ("ROACE")  3.33%  -1.62%  9.99%  9.36%  8.78%
Non-GAAP operating ROACE before M&A  9.15%  8.89%  10.92%  10.19%  8.81%
           
Net income (as reported) $  1,221  $  (459) $  2,782  $  2,543  $  2,342 
Weighted average common shares outstanding    5,547,715     4,616,515     4,633,417     4,635,483     4,630,398 
Average assets $  1,581,538  $  1,398,945  $  1,396,459  $  1,373,832  $  1,337,814 
Average equity    146,712     113,017     111,357     108,720     106,741 
           
           

 

THE COMMUNITY FINANCIAL CORPORATION
AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME 
UNAUDITED
                        
 For the Three Months Ended March 31, 2018 For the Three Months Ended
    2018      2017   March 31, 2018 December 31, 2017
     Average     Average     Average     Average
 Average   Yield/ Average   Yield/ Average   Yield/ Average   Yield/
dollars in thousandsBalance Interest Cost Balance Interest Cost Balance Interest Cost Balance Interest Cost
Assets                       
Interest-earning assets:                       
Loan portfolio $  1,273,355 $  14,726  4.63% $  1,082,401 $  11,970 4.42% $  1,273,355 $  14,726 4.63% $  1,132,232 $  12,560 4.44%
Investment securities, federal funds                       
sold and interest-bearing deposits   183,567    1,167 2.54%    172,131    952 2.21%    183,567    1,167 2.54%    175,663    1,013 2.31%
Total Interest-Earning Assets   1,456,922    15,893 4.36%    1,254,532    12,922 4.12%    1,456,922    15,893 4.36%    1,307,895    13,573 4.15%
Cash and cash equivalents   26,053        11,289        26,053        16,368    
Goodwill   10,145        -        10,145        -    
Core deposit intangible   3,479        -        3,479        -    
Other assets   84,939        71,993        84,939        74,682    
Total Assets$   1,581,538      $   1,337,814      $   1,581,538      $   1,398,945     
                        
Liabilities and Stockholders' Equity                       
Interest-bearing liabilities:                       
Savings$  74,944 $  12 0.06% $  51,419 $  6 0.05% $  74,944 $  12 0.06% $  54,127 $  7 0.05%
Interest-bearing demand and money                       
market accounts   496,995    543 0.44%    412,077    308 0.30%    496,995    543 0.44%    424,767    408 0.38%
Certificates of deposit   469,248    1,401 1.19%    440,527    954 0.87%    469,248    1,401 1.19%    445,467    1,297 1.16%
Long-term debt    50,377    285 2.26%    61,882    366 2.37%    50,377    285 2.26%    55,503    286 2.06%
Short-term debt   76,533    283 1.48%    77,878    147 0.76%    76,533    283 1.48%    95,767    323 1.35%
Subordinated Notes   23,000    359 6.24%    23,000    359 6.24%    23,000    359 6.24%    23,000    359 6.24%
Guaranteed preferred beneficial interest                -    -        
in junior subordinated debentures   12,000    120 4.00%    12,000    108 3.60%    12,000    120 4.00%    12,000    120 4.00%
                        
Total Interest-Bearing Liabilities   1,203,097    3,003 1.00%    1,078,783    2,248 0.83%    1,203,097    3,003 1.00%    1,110,631    2,800 1.01%
                        
Noninterest-bearing demand deposits   219,703        142,189        219,703        164,515    
Other liabilities   12,026        10,101        12,026        10,782    
Stockholders' equity   146,712        106,741        146,712        113,017    
Total Liabilities and Stockholders' Equity$   1,581,538      $   1,337,814      $   1,581,538      $   1,398,945     
                        
Net interest income  $  12,890     $  10,674     $  12,890     $  10,773  
                        
Interest rate spread    3.36%     3.29%     3.36%     3.14%
Net yield on interest-earning assets    3.54%     3.40%     3.54%     3.29%
Ratio of average interest-earning                       
assets to average interest bearing                       
liabilities    121.10%     116.29%     121.10%     117.76%
                        
Cost of funds    0.84%     0.74%     0.84%     0.88%
Cost of deposits    0.62%     0.48%     0.62%     0.63%
Cost of debt    2.59%     2.24%     2.59%     2.34%
                        
Note: Loan average balance includes non-accrual loans. There are no tax equivalency adjustments. There was $321,000 of accretion interest during the three months ended March 31, 2018.
 

 

      
THE COMMUNITY FINANCIAL CORPORATION     
CONSOLIDATED BALANCE SHEETS     
  (Unaudited)  * 
(dollars in thousands, except per share amounts) March 31, 2018 December 31, 2017 
Assets     
Cash and due from banks  $  29,739  $  13,315  
Federal funds sold    730     -  
Interest-bearing deposits with banks    3,986     2,102  
Securities available for sale (AFS), at fair value    71,024     68,285  
Securities held to maturity (HTM), at amortized cost    98,198     99,246  
Federal Home Loan Bank (FHLB) stock - at cost    5,587     7,276  
Loans receivable    1,280,773     1,151,130  
Less: allowance for loan losses    (10,471)    (10,515) 
Net loans    1,270,302     1,140,615  
Goodwill    10,277     -  
Premises and equipment, net    22,496     21,391  
Premises and equipment held for sale    2,341     -  
Other real estate owned (OREO)    9,352     9,341  
Accrued interest receivable    4,749     4,511  
Investment in bank owned life insurance    35,619     29,398  
Core deposit intangible    3,385     -  
Other assets    9,211     10,481  
Total Assets $  1,576,996  $  1,405,961  
      
Liabilities and Stockholders' Equity     
Liabilities     
Deposits     
Non-interest-bearing deposits $  229,612  $  159,844  
Interest-bearing deposits    1,056,324     946,393  
Total deposits    1,285,936     1,106,237  
Short-term borrowings    51,500     87,500  
Long-term debt    45,483     55,498  
Guaranteed preferred beneficial interest in     
  junior subordinated debentures (TRUPs)    12,000     12,000  
Subordinated notes - 6.25%    23,000     23,000  
Accrued expenses and other liabilities    13,420     11,769  
Total Liabilities    1,431,339     1,296,004  
      
Stockholders' Equity     
Common stock - par value $.01; authorized - 15,000,000 shares;     
  issued 5,573,841 and 4,649,658 shares, respectively    56     46  
Additional paid in capital    83,947     48,209  
Retained earnings    64,307     63,648  
Accumulated other comprehensive loss    (1,898)    (1,191) 
Unearned ESOP shares    (755)    (755) 
Total Stockholders' Equity    145,657     109,957  
Total Liabilities and Stockholders' Equity $  1,576,996  $  1,405,961  
      
*Derived from audited financial statements     

 

THE COMMUNITY FINANCIAL CORPORATION         
SUMMARY OF LOAN PORTFOLIO           
(dollars in thousands)           
            
  (Unaudited) * (Unaudited) (Unaudited) (Unaudited) 
BY LOAN TYPE March 31, 2018 December 31, 2017 September 30, 2017 June 30, 2017 March 31, 2017 
            
Commercial real estate $  817,576  $  727,314  $  712,840 $  713,789 $  677,205 
Residential first mortgages    166,390     170,374     175,816    181,386    178,903 
Residential rentals    129,026     110,228     110,905    103,361    100,891 
Construction and land development    28,226     27,871     31,094    32,603    37,761 
Home equity and second mortgages    39,481     21,351     22,334    20,847    21,392 
Commercial loans    52,198     56,417     56,376    55,023    55,091 
Consumer loans    853     573     541    412    439 
Commercial equipment     45,905     35,916     35,500    34,589    42,060 
Gross loans    1,279,655     1,150,044     1,145,406    1,142,010    1,113,742 
Net deferred costs (fees)    1,118     1,086     1,033    853    736 
Total loans, net of deferred costs $  1,280,773  $  1,151,130  $  1,146,439 $  1,142,863 $  1,114,478 
            
* Derived from audited financial statements.           
            
  (Unaudited) * (Unaudited) (Unaudited) (Unaudited) 
BY ACQUIRED AND NON-ACQUIRED March 31, 2018 December 31, 2017 September 30, 2017 June 30, 2017 March 31, 2017 
            
Acquired loans - performing $  121,615  $  -  $  - $  - $  - 
Acquired loans - purchase credit impaired ("PCI")    3,871     -     -    -    - 
Total acquired loans    125,486     -     -    -    - 
Non-acquired loans**    1,154,169     1,150,044     1,145,406    1,142,010    1,113,742 
Gross loans    1,279,655     1,150,044     1,145,406    1,142,010    1,113,742 
Net deferred costs (fees)    1,118     1,086     1,033    853    736 
Total loans, net of deferred costs $  1,280,773  $  1,151,130  $  1,146,439 $  1,142,863 $  1,114,478 
            
* Derived from audited financial statements.           
** Non-acquired loans include loans transferred from acquired pools following release of acquisition accounting FMV adjustments.       
       

 

            
ALLOWANCE FOR LOAN LOSSES            
THREE MONTHS ENDED           
            
  (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) 
(dollars in thousands) March 31, 2018 December 31, 2017 September 30, 2017 June 30, 2017 March 31, 2017 
            
Beginning of period $  10,515  $  10,435  $  10,434  $  10,109  $  9,860  
            
Charge-offs    (580)    (13)    (253)    (68)    (148) 
Recoveries    36     63     30     17     17  
Net charge-offs    (544)    50     (223)    (51)    (131) 
            
Provision for loan losses    500     30     224     376     380  
End of period $  10,471  $  10,515  $  10,435  $  10,434  $  10,109  
            
Net charge-offs to average loans (annualized)  -0.17%  0.02%  -0.08%  -0.02%  -0.05% 
            
Breakdown of general and specific allowance as a percentage of gross loans       
General allowance $  9,310  $  9,491  $  9,617  $  8,958  $  8,444  
Specific allowance    1,161     1,024     818     1,476     1,665  
  $  10,471  $  10,515  $  10,435  $  10,434  $  10,109  
General allowance  0.73%  0.82%  0.84%  0.78%  0.76% 
Specific allowance  0.09%  0.09%  0.07%  0.13%  0.15% 
Allowance to gross loans  0.82%  0.91%  0.91%  0.91%  0.91% 
            
Allowance to non-acquired gross loans  0.91%  0.91%  0.91%  0.91%  0.91% 
            
            

 

THE COMMUNITY FINANCIAL CORPORATION                 
SUMMARY OF  DEPOSITS                     
(dollars in thousands) (Unaudited) * (Unaudited) (Unaudited) (Unaudited) 
   March 31, 2018 December 31, 2017 September 30, 2017 June 30, 2017 March 31, 2017 
 (dollars in thousands) Balance % Balance % Balance % Balance % Balance % 
 Noninterest-bearing demand $  229,612 17.86% $  159,844 14.45% $  157,665 14.36% $  154,962 14.25% $  149,410 14.21% 
 Interest-bearing:                     
 Demand    217,039 16.88%    215,447 19.48%    195,632 17.82%    190,674 17.53%    155,964 14.83% 
 Money market deposits    284,449 22.12%    226,351 20.46%    229,740 20.92%    238,822 21.95%    253,531 24.10% 
 Savings    76,360 5.94%    52,990 4.79%    54,310 4.95%    54,361 5.00%    52,899 5.03% 
 Certificates of deposit    478,476 37.21%    451,605 40.82%    460,654 41.95%    448,987 41.27%    439,985 41.83% 
 Total interest-bearing    1,056,324 82.14%    946,393 85.55%    940,336 85.64%    932,844 85.75%    902,379 85.79% 
                       
 Total Deposits $  1,285,936 100.00% $  1,106,237 100.00% $  1,098,001 100.00% $  1,087,806 100.00% $  1,051,789 100.00% 
                       
 Transaction accounts $   807,460  62.79% $   654,632  59.18% $   637,347  58.05% $   638,819  58.73% $   611,804  58.17% 
                       
* Derived from audited financial statements.                   
                       

 

            
THE COMMUNITY FINANCIAL CORPORATION           
RECONCILIATION OF NON-GAAP MEASURES            
             
             
Reconciliation of US GAAP total assets, common equity, common equity to assets and book value to Non-GAAP tangible assets, tangible common equity, tangible common equity to tangible assets and tangible book value.  
   
This press release, including the accompanying financial statement tables, contains financial information determined by methods other than in accordance with generally accepted accounting principles, or GAAP. This financial information includes certain performance measures, which exclude intangible assets.  These non-GAAP measures are included because the Company believes they may provide useful supplemental information for evaluating the underlying performance trends of the Company.  
             
  (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)  
(dollars in thousands, except per share amounts) March 31, 2018 December 31, 2017 September 30, 2017 June 30, 2017 March 31, 2017  
             
Total assets $  1,576,996  $  1,405,961  $  1,402,172  $  1,392,688  $  1,356,073   
Less: intangible assets            
Goodwill    10,277     -     -     -     -   
Core deposit intangible    3,385     -     -     -     -   
Total intangible assets    13,662     -     -     -     -   
Tangible assets $  1,563,334  $  1,405,961  $  1,402,172  $  1,392,688  $  1,356,073   
           ` 
Total common equity $  145,657  $  109,957  $  110,885  $  109,293  $  106,566   
Less: intangible assets    13,662     -     -     -     -   
Tangible common equity $  131,995  $  109,957  $  110,885  $  109,293  $  106,566   
             
Common shares outstanding at end of period    5,573,841     4,649,658     4,649,302     4,648,199     4,641,342   
             
GAAP common equity to assets  9.24%  7.82%  7.91%  7.85%  7.86%  
Non-GAAP tangible common equity to tangible assets  8.44%  7.82%  7.91%  7.85%  7.86%  
             
GAAP common book value per share $  26.13  $  23.65  $  23.85  $  23.51  $  22.96   
Non-GAAP tangible common book value per share $  23.68  $  23.65  $  23.85  $  23.51  $  22.96   

 

THE COMMUNITY FINANCIAL CORPORATION 
SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED) 
 Three Months Ended  
CONDENSED CONSOLIDATED INCOME STATEMENT March 31, December 31, September 30, June 30, March 31, 
(dollars in thousands, except per share amounts )  2018   2017   2017   2017   2017  
Interest and Dividend Income           
  Loans, including fees  $  14,726  $  12,560  $  12,671  $  12,410  $  11,970  
  Interest and dividends on securities    1,095     999     988     973     946  
  Interest on deposits with banks    72     14     21     12     6  
Total Interest and Dividend Income    15,893     13,573     13,680     13,395     12,922  
            
Interest Expense           
  Deposits    1,956     1,712     1,563     1,403     1,269  
  Short-term borrowings    283     323     304     283     147  
  Long-term debt    764     765     805     776     832  
Total Interest Expense    3,003     2,800     2,672     2,462     2,248  
            
Net Interest Income (NII)    12,890     10,773     11,008     10,933     10,674  
  Provision for loan losses    500     30     224     376     380  
            
NII After Provision For Loan Losses     12,390     10,743     10,784     10,557     10,294  
            
Noninterest Income           
Loan appraisal, credit, and misc. charges    53     73     28     9     47  
Gain on sale of asset    -     -     -     47     -  
Net gains (losses) on sale of OREO    -     7     -     9     27  
Net gains (losses) on sale of investment securities    -     42     -     133     -  
Income from bank owned life insurance    226     192     196     194     191  
Service charges    752     686     639     660     610  
Gain on sale of loans held for sale    -     -     294     -     -  
Total Noninterest Income    1,031     1,000     1,157     1,052     875  
            
Noninterest Expense           
Salary and employee benefits    5,047     4,191     4,056     4,198     4,313  
Occupancy expense    766     691     630     658     653  
Advertising    159     139     156     140     108  
Data processing expense     683     588     555     634     577  
Professional fees    352     472     510     360     320  
Merger and acquisition costs    2,868     335     239     238     17  
Depreciation of premises and equipment    199     192     191     204     199  
Telephone communications    99     49     46     45     51  
Office supplies    40     33     26     28     32  
FDIC Insurance    198     133     178     161     166  
OREO valuation allowance and expenses    114     123     283     145     195  
Core deposit intangible amortization    240     -     -     -     -  
Other    902     800     572     719     748  
Total Noninterest Expense    11,667     7,746     7,442     7,530     7,379  
            
  Income before income taxes    1,754     3,997     4,499     4,079     3,790  
  Income tax expense    533     4,456     1,717     1,536     1,448  
Net (Loss) Income  $  1,221  $  (459) $  2,782  $  2,543  $  2,342  
            
            
THE COMMUNITY FINANCIAL CORPORATION 
SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED) - Continued 
    *       
CONDENSED CONSOLIDATED BALANCE SHEETS March 31, December 31, September 30, June 30, March 31, 
(dollars in thousands, except per share amounts )  2018  2017  2017  2017 2017 
Assets           
Cash and due from banks  $  29,739  $  13,315  $  15,627  $  14,982  $  9,301  
Federal funds sold    730     -     -     -     -  
Interest-bearing deposits with banks    3,986     2,102     1,577     1,338     1,487  
Securities available for sale (AFS), at fair value    71,024     68,285     61,376     54,288     57,042  
Securities held to maturity (HTM), at amortized cost    98,198     99,246     104,530     106,842     104,965  
Federal Home Loan Bank (FHLB) stock - at cost    5,587     7,276     7,447     7,745     7,703  
Loans receivable    1,280,773     1,151,130     1,146,439     1,142,863     1,114,478  
Less: allowance for loan losses    (10,471)    (10,515)    (10,435)    (10,434)    (10,109) 
Net Loans    1,270,302     1,140,615     1,136,004     1,132,429     1,104,369  
Goodwill    10,277     -     -     -     -  
Premises and equipment, net    22,496     21,391     21,751     22,042     22,246  
Premises and equipment held for sale    2,341     -     -     -     345  
Other real estate owned (OREO)    9,352     9,341     9,741     9,154     6,747  
Accrued interest receivable    4,749     4,511     4,494     4,212     4,023  
Investment in bank owned life insurance    35,619     29,398     29,206     29,011     28,817  
Core deposit intangible    3,385     -     -     -     -  
Other assets    9,211     10,481     10,419     10,645     9,028  
            
Total Assets $  1,576,996  $  1,405,961  $  1,402,172  $  1,392,688  $  1,356,073  
            
Liabilities and Stockholders' Equity           
            
Liabilities           
Deposits           
Non-interest-bearing deposits $  229,612  $  159,844  $  157,665  $  154,962  $  149,410  
Interest-bearing deposits    1,056,324     946,393     940,336     932,844     902,379  
Total deposits    1,285,936     1,106,237     1,098,001     1,087,806     1,051,789  
Short-term borrowings    51,500     87,500     91,500     88,500     97,500  
Long-term debt    45,483     55,498     55,514     65,529     55,544  
Guaranteed preferred beneficial interest in           
  junior subordinated debentures (TRUPs)    12,000     12,000     12,000     12,000     12,000  
Subordinated notes - 6.25%    23,000     23,000     23,000     23,000     23,000  
Accrued expenses and other liabilities    13,420     11,769     11,272     6,560     9,674  
            
Total Liabilities    1,431,339     1,296,004     1,291,287     1,283,395     1,249,507  
            
Stockholders' Equity           
Common stock     56     46     46     46     46  
Additional paid in capital    83,947     48,209     47,994     47,847     47,511  
Retained earnings    64,307     63,648     64,375     62,058     59,979  
Accumulated other comprehensive loss    (1,898)    (1,191)    (538)    (489)    (801) 
Unearned ESOP shares    (755)    (755)    (992)    (169)    (169) 
            
Total Stockholders' Equity    145,657     109,957     110,885     109,293     106,566  
            
Total Liabilities and Stockholders' Equity $  1,576,996  $  1,405,961  $  1,402,172  $  1,392,688  $  1,356,073  
            
Common shares issued and outstanding    5,573,841     4,649,658     4,649,302     4,648,199     4,641,342  
            
* Derived from audited financial statements.           
            
            
THE COMMUNITY FINANCIAL CORPORATION 
SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED) - Continued 
 Three Months Ended  
SELECTED FINANCIAL INFORMATION AND RATIOS March 31, December 31, September 30, June 30, March 31, 
(dollars in thousands, except per share amounts )  2018  2017 2017 2017 2017 
KEY OPERATING RATIOS           
Return on average assets     0.31 %    (0.13)   %    0.80 %    0.74 %    0.70 % 
Return on average common equity    3.33     (1.62)    9.99     9.36     8.78  
Average total equity to average total assets    9.28     8.08     7.97     7.91     7.98  
Interest rate spread    3.36     3.14     3.24     3.27     3.29  
Net interest margin     3.54     3.29     3.38     3.39     3.40  
Cost of funds    0.84     0.88     0.84     0.79     0.74  
Cost of deposits    0.62     0.63     0.58     0.53     0.48  
Cost of debt    2.59     2.34     2.34     2.22     2.24  
Efficiency ratio     83.81     65.79     61.18     62.83     63.89  
Efficiency ratio - Non-GAAP **    62.39     62.16     56.88     60.59     62.20  
Non-interest expense to average assets    2.95     2.21     2.13     2.19     2.21  
Net operating expense to average assets    2.69     1.93     1.80     1.89     1.94  
Net operating expense to average assets - Non-GAAP **    1.94     1.81     1.65     1.83     1.89  
Avg. int-earning assets to avg. int-bearing liabilities    121.10     117.76     116.64     117.07     116.29  
Net charge-offs to average loans    0.17     (0.02)    0.08     0.02     0.05  
COMMON SHARE DATA           
Basic net income per common share $  0.22  $  (0.10) $  0.60  $  0.55  $  0.51  
Diluted net income per common share    0.22     (0.10)    0.60     0.55     0.51  
Cash dividends paid per common share    0.10     0.10     0.10     0.10     0.10  
Weighted average common shares outstanding:           
  Basic    5,547,715     4,616,515     4,633,391     4,632,911     4,628,357  
  Diluted    5,547,715     4,616,515     4,633,417     4,635,483     4,630,398  
            
ASSET QUALITY           
Total assets $  1,576,996  $  1,405,961  $  1,402,172  $  1,392,688  $  1,356,073  
Gross loans    1,279,655     1,150,044     1,145,406     1,142,010     1,113,742  
Classified Assets    44,736     50,298     39,172     35,413     36,458  
Allowance for loan losses    10,471     10,515     10,435     10,434     10,109  
            
Past due loans - 31 to 89 days    5,231     9,227     1,642     1,081     231  
Past due loans >=90 days    6,281     2,483     2,741     3,782     7,168  
Total past due loans    11,512     11,710     4,383     4,863     7,399  
            
Non-accrual loans     8,439     4,693     3,012     4,442     7,830  
Accruing troubled debt restructures (TDRs)    9,953     10,021     10,069     10,228     10,264  
Other real estate owned (OREO)    9,352     9,341     9,741     9,154     6,747  
Non-accrual loans, OREO and TDRs $  27,744  $  24,055  $  22,822  $  23,824  $  24,841  
ASSET QUALITY RATIOS           
Classified assets to total assets    2.84 %    3.58 %    2.79 %    2.54 %    2.69 % 
Classified assets to risk-based capital    24.81     32.10     24.97     22.81     23.91  
Allowance for loan losses to total loans    0.82     0.91     0.91     0.91     0.91  
Allowance for loan losses to non-accrual loans    124.08     224.06     346.45     234.89     129.11  
Past due loans - 31 to 89 days to total loans     0.41     0.80     0.14     0.09     0.02  
Past due loans >=90 days to total loans    0.49     0.22     0.24     0.33     0.64  
Total past due (delinquency) to total loans    0.90     1.02     0.38     0.43     0.66  
Non-accrual loans to total loans     0.66     0.41     0.26     0.39     0.70  
Non-accrual loans and TDRs to total loans     1.44     1.28     1.14     1.28     1.62  
Non-accrual loans and OREO to total assets    1.13     1.00     0.91     0.98     1.07  
Non-accrual loans, OREO and TDRs to total assets     1.76     1.71     1.63     1.71     1.83  
            
COMMON SHARE DATA           
Book value per common share $  26.13  $  23.65  $  23.85  $  23.51  $  22.96  
Tangible book value per common share**    23.68    ***    ***    ***    ***  
Common shares outstanding at end of period    5,573,841     4,649,658     4,649,302     4,648,199     4,641,342  
            
OTHER DATA           
Full-time equivalent employees    200     165     169     165     165  
Branches (1)    16     11     11     12     12  
Loan Production Offices    5     5     5     5     5  
            
REGULATORY CAPITAL RATIOS            
Tier 1 capital to average assets    9.35 %    8.79 %    8.82 %    8.85 %    8.91 % 
Tier 1 common capital to risk-weighted assets    10.31     9.51     9.81     9.70     9.62  
Tier 1 capital to risk-weighted assets    11.23     10.53     10.87     10.77     10.69  
Total risk-based capital to risk-weighted assets    13.80     13.40     13.81     13.72     13.66  
Tangible common equity to tangible assets **           
            
** Non-GAAP financial measure. See reconciliation of GAAP and NON-GAAP measures.        
*** The Company had no intangible assets before January 1, 2018.           
(1) The Company plans to close four of the five acquired branches in May 2018.          
            
            
            
            
THE COMMUNITY FINANCIAL CORPORATION 
SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED) - Continued 
This press release, including the accompanying financial statement tables, contains financial information determined by methods other than in accordance with generally accepted accounting principles, or GAAP. This financial information includes certain operating performance measures, which exclude merger and acquisition costs, OREO gains and losses and OREO expenses, and gains and losses on sales of investments or other assets, that are not considered part of recurring operations.  These non-GAAP measures are included because the Company believes they may provide useful supplemental information for evaluating the underlying performance trends of the Company. 
 Three Months Ended  
  March 31, December 31, September 30, June 30, March 31, 
(dollars in thousands, except per share amounts )  2018   2017  2017 2017 2017 
            
RECONCILIATION OF GAAP AND NON-GAAP FINANCIAL MEASURES         
Efficiency ratio - GAAP basis           
Noninterest expense $  11,667  $  7,746  $  7,442  $  7,530  $  7,379  
Net interest income plus noninterest income    13,921     11,773     12,165     11,985     11,549  
            
Efficiency ratio - GAAP basis  83.81%  65.79%  61.18%  62.83%  63.89% 
            
Efficiency ratio - Non-GAAP basis           
Noninterest Expense $  11,667  $  7,746  $  7,442  $  7,530  $  7,379  
Non-GAAP adjustments:           
Merger and acquisition costs    (2,868)    (335)    (239)    (238)    (17) 
OREO valuation allowance and expenses    (114)    (123)    (283)    (145)    (195) 
Noninterest expense - as adjusted    8,685     7,288     6,920     7,147     7,167  
            
Net interest income plus noninterest income    13,921     11,773     12,165     11,985     11,549  
Non-GAAP adjustments:           
(Gains) losses on sale of asset    -     -     -     (47)    -  
Net (gains) losses on sale of OREO    -     (7)    -     (9)    (27) 
Net (gains) losses on sale of investment securities    -     (42)    -     (133)    -  
Net interest income plus noninterest income - adjusted $  13,921  $  11,724  $  12,165  $  11,796  $  11,522  
            
Efficiency ratio -Non-GAAP basis  62.39%  62.16%  56.88%  60.59%  62.20% 
            
            
Net operating exp. to average assets ratio - GAAP basis           
Average Assets $  1,581,538  $  1,398,945  $  1,396,459  $  1,373,832  $  1,337,814  
            
Noninterest expense    11,667     7,746     7,442     7,530     7,379  
less: noninterest income    (1,031)    (1,000)    (1,157)    (1,052)    (875) 
Net operating exp. $  10,636  $  6,746  $  6,285  $  6,478  $  6,504  
Net operating exp. to average assets - GAAP basis  2.69%  1.93%  1.80%  1.89%  1.94% 
            
Net operating exp. to average assets ratio -Non-GAAP basis          
Average Assets $  1,581,538  $  1,398,945  $  1,396,459  $  1,373,832  $  1,337,814  
            
Net operating exp.    10,636     6,746     6,285     6,478     6,504  
Non-GAAP adjustments noninterest expense:            
Merger and acquisition costs    (2,868)    (335)    (239)    (238)    (17) 
OREO valuation allowance and expenses    (114)    (123)    (283)    (145)    (195) 
Non-GAAP adjustments non interest income:           
Gains (losses) on sale of asset    -     -     -     47     -  
Net gains (losses) on sale of OREO    -     7     -     9     27  
Net gains (losses) on sale of investment securities    -     42     -     133     -  
Net operating exp.-adjusted $  7,654  $  6,337  $  5,763  $  6,284  $  6,319  
Net operating exp. to average assets - Non-GAAP basis  1.94%  1.81%  1.65%  1.83%  1.89% 
            
            

 


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