The Community Financial Corporation Reports a 44% Increase in Net Income for the Nine Months Ended September 30, 2017

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| Source: The Community Financial Corporation

WALDORF, Md., Oct. 20, 2017 (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 third quarter and nine months ended September 30, 2017. Net income was $2.8 million for the three months ended September 30, 2017, an increase of $819,000 or 41.7%, compared to $2.0 million for the three months ended September 30, 2016. Earnings per common share (diluted) at $0.60 increased $0.18 from $0.42 per common share (diluted) for the three months ended September 30, 2016.  The Company’s returns on average assets and common stockholders’ equity for the third quarter of 2017 were 0.80% and 9.99%, respectively, compared to 0.63% and 7.48%, respectively, for the third quarter of 2016.    

Net income was $7.7 million for the nine months ended September 30, 2017, an increase of $2.4 million or 44.4%, compared to $5.3 million for the nine months ended September 30, 2016. Earnings per common share (diluted) for the first nine months of 2017 were $1.65 increasing $0.50 from $1.15 per common share (diluted) for the nine months ended September 30, 2016. The Company’s returns on average assets and common stockholders’ equity for the nine months ended September 30, 2017 were 0.75% and 9.38%, respectively, compared to 0.59% and 6.89%, respectively, for first nine months of 2016. 

On July 31, 2017, the Company and Community Bank of the Chesapeake entered into an Agreement and Plan of Merger with County First Bank (“County First”). Merger related costs, which included mainly professional fees and investment banking costs, for the three months and nine months ended September 30, 2017 were $239,000 and $494,000, respectively.  These costs reduced diluted earnings per share by $0.03 and $0.07, respectively, for the three and nine months ended September 30, 2017. At June 30, 2017, County First had total assets of $224 million, total deposits of $209 million, and five branch offices in La Plata, Waldorf, New Market, Prince Frederick and California, Maryland.

The Company continued to improve quarterly results, recording its eighth consecutive quarter of earnings growth. Net income of $2.8 million for the three months ended September 30, 2017 increased $239,000 compared to $2.5 million of net income for the second quarter of 2017. Earnings per common share (diluted) at $0.60 increased $0.05 from $0.55 per common share (diluted) for the three months ended June 30, 2017.  The Company’s returns on average assets and common stockholders’ equity for the third quarter of 2017 were 0.80% and 9.99%, respectively, compared to 0.74% and 9.36%, respectively, and 0.70% and 8.78%, respectively, for the second and first quarters of 2017.  The increase in net income in the third quarter was the result of increased operating revenues of $180,000, decreases in the provision for loan losses of $152,000 and noninterest expense of $88,000. These increases to pretax earnings were offset by a higher income tax expense of $181,000. The Company’s loan portfolio increased to $1,145.4 million at September 30, 2017, an increase of $3.4 million compared to second quarter ending loan balances of $1,142.0 million.

“Since December 31, 2016, loans have grown $56.0 million or 7% annualized to $1,145.0 million at September 30, 2017. We experienced a seasonal slowdown in loan growth in the third quarter. Scheduled loan closings in the fourth quarter are expected to produce annual growth of 8% to 9%,” stated William J. Pasenelli, Chief Executive Officer and Vice-Chairman of the Board.

“I am pleased with our accomplishments in improving credit quality and controlling expense growth”, stated James Burke, President of the Bank and Chief Risk Officer of the Company. “Non-accrual loans and other real estate owned (“OREO”) as a percentage of assets have declined every quarter since the fourth quarter of 2015, decreasing from 1.83% of assets to 0.91% at September 30, 2017. During the same timeframe, the Company’s efficiency ratio1 improved 13 percentage points from 74% for the three months ended December 31, 2015 to 61% for the third quarter of 2017.”

Net interest margin for the three months ended September 30, 2017 was stable compared to the second quarter of 2017, decreasing one basis point from 3.39% to 3.38%, respectively. The decrease was expected and attributable to a slightly faster increase in the Company’s cost of funds compared to increased yields for loans and investments. The increase in cost of funds to 0.84% for the three months ended September 30, 2017 from 0.79% for the second quarter 2017 was primarily due to rising short-term wholesale funding rates during the first nine months of 2017.  A very positive trend in mitigating net interest rate compression was $22.7 million in growth of average transaction deposits which increased from $619.0 million in the second quarter to $641.7 million in the third quarter of 2017. Transaction accounts include savings, money market and noninterest-bearing and interest-bearing demand accounts. The Company considers increasing transaction accounts over other funding choices as a key strategy to offset the current flat rate environment. Average transaction account costs increased three basis points during the quarter from 0.23% for the three months ended June 30, 2017 to 0.26% for the three months ended September 30, 2017.

Loan yields increased three basis points during the third quarter of 2017 to 4.49% compared to 4.46% for the previous quarter. Overall loan and investment yields increased during the third quarter from 4.16% during the second quarter of 2017 to 4.20% for the three months ended September 30, 2017.  The increase in interest-earning yields was due to larger dollar growth in the higher yielding commercial real estate and residential rental portfolios compared to the residential first mortgage portfolio. In addition, the scheduled repricing of loans, the purchase of securities and the production of commercial real estate loans also contributed to increased yields. Yields in the commercial real estate portfolio, the Company’s largest loan portfolio at $712.8 million as of September 30, 2017, increased seven basis points during the third quarter to 4.46% compared to 4.39% in second quarter.

The Company closed its Central Park Fredericksburg branch during the third quarter of 2017. This location continues to serve as a loan production office and the branch closure did not have a material effect on operations. The Company offered branch employees open positions.

Net Interest Income

Net interest income increased 8.5% or $864,000 million to $11.0 million for the three months ended September 30, 2017 compared to $10.1 million for the three months ended September 30, 2016. Net interest margin at 3.38% for the three months ended September 30, 2017 decreased nine basis points from 3.47% for the three months ended September 30, 2016. Average interest-earning assets were $1,304.0 million for the third quarter of 2017, an increase of $134.1 million or 11.5%, compared to $1,169.9 million for the same quarter of 2016.

Net interest income increased 10.8% or $3.2 million to $32.6 million for the nine months ended September 30, 2017 compared to $29.4 million for the nine months ended September 30, 2016. Net interest margin at 3.39% for the nine months ended September 30, 2017, decreased 11 basis points from 3.50% for the nine months ended September 30, 2016. Average interest-earning assets were $1,282.4 million for the first nine months of 2017, an increase of $159.8 million or 14.2%, compared to $1,122.6 million for the first nine months of 2016.

Net interest margin declined during the nine months ended September 30, 2017, primarily due to reduced yields on loans and a slight increase in cost of funds. Yields on the loan portfolio decreased from 4.57% for the nine months ended September 30, 2016 to 4.46% for nine months ended September 30, 2017. Yields were reduced compared to the prior year due primarily to the Bank’s increased investment in residential mortgages during 2016, current competition for commercial real estate loans and other commercial loans and low intermediate term interest rates that were depressed for most of 2016.

During the second and third quarter of 2017, loan yields began to rise compared to 2016, influenced by increases in the federal funds target rate (1.25% as of June 15, 2017) and loan growth in higher yielding portfolios. The Company plans to continue to slow the growth of residential first mortgages in favor of increasing commercial loan growth for the balance of the year.  

An increase in the cost of funds impacted net interest margin for the comparable periods. The cost of funds increased six basis points to 0.79% for the nine months ended September 30, 2017 compared to 0.73% for the nine months ended September 30, 2016. The Company continued to control deposit costs by increasing transaction deposits as a percentage of overall deposits. Average transaction deposits, which include savings, money market, interest-bearing demand and noninterest bearing demand accounts, for the nine months ended September 30, 2017 increased $62.9 million, or 11.2%, to $622.3 million compared to $559.4 million for the comparable period in 2016. Average transaction accounts as a percentage of total deposits increased from 57.8% for the nine months ended September 30, 2016 to 58.5% for the nine months ended September 30, 2017.

Wholesale and time-based funding rates are typically more sensitive to rising interest rates than transactional deposits. Compared to the nine months ended September 30, 2016, interest rates for the first nine months of 2017 increased by nine basis points to 0.95% on certificates of deposit, while interest-bearing transactional deposits increased by three basis points to 0.31%. Federal Home Loan Bank (“FHLB”) short-term borrowings increased by 59 basis points to 1.08% for the nine months ended September 30, 2017 compared to 0.49% for the same period during 2016. The Company’s increases in transaction deposits during the last twelve months have decreased downward pressure on net interest margin. The ability to increase transaction deposits faster than wholesale funding could mitigate possible downward pressure on net interest margin in a rising rate environment.

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

   

Noninterest Income and Noninterest Expense

Noninterest income increased by $315,000 to $1.2 million for the three months ended September 30, 2017 compared to $842,000 for the three months ended September 30, 2016. Noninterest income increased by $615,000 to $3.1 million for the nine months ended September 30, 2017 compared to $2.5 million for the nine months ended September 30, 2016. The increase in income for the nine months was principally due to OREO losses recognized in 2016 not recognized in 2017 and gains on loans held for sale in 2017, partially offset by a reduction in service charge income.  

Noninterest expense averaged just below $7.3 million per quarter during 2016. The Company focused during the prior year on controlling the growth of expenses by streamlining internal processes and reviewing vendor relationships. These efforts resulted in a reduction in nine FTEs, from 171 employees to 162 employees, during the year ended December 31, 2016. The Company’s strategy to create operating leverage through continued asset growth combined with controlling the growth in expenses has continued during 2017.

For the three months ended September 30, 2017, noninterest expense increased 1.8%, or $131,000, to $7.4 million from $7.3 million for the comparable period in 2016. Third quarter 2017 operating expenses included $239,000 of merger related costs, comprising primarily professional fees and investment banking costs. The Company’s efficiency ratio for the three months ended September 30, 2017 and 2016 was 61.18% and 66.55%, respectively. The Company’s net operating expense ratio2 as a percentage of average assets for the three months ended September 30, 2017 and 2016 was 1.80% and 2.06%, respectively. These ratios have improved in each successive quarter since the three months ended December 31, 2015.  The following is a summary breakdown of noninterest expense:

         
  Three Months Ended September 30,    
(dollars in thousands) 2017 2016 $ Change % Change
Compensation and Benefits $  4,056 $  4,268 $  (212) (5.0%)
OREO Valuation Allowance and Expenses       283    203    80  39.4%
Operating Expenses    3,103    2,840    263  9.3%
Total Noninterest Expense $  7,442 $  7,311 $  131  1.8%
         

For the nine months ended September 30, 2017, noninterest expense increased 2.3%, or $508,000, to $22.3 million from $21.8 million for the comparable period in 2016. The first nine months of 2017 the Company controlled growth in compensation and benefits expense, reducing expense $50,000 or 0.4%, compared to the same period in the prior year. Total growth in compensation and benefit costs was 2.7% and 3.2%, respectively for the years ended December 31, 2016 and 2015. Year to date 2017 operating expenses included $494,000 of merger related costs, comprising primarily professional fees and investment banking costs. The Company’s efficiency ratio for the nine months ended September 30, 2017 and 2016 was 62.61% and 68.47%, respectively. The Company’s net operating expense ratio as a percentage of average assets for the nine months ended September 30, 2017 and 2016 was 1.88% and 2.14%, respectively. The following is a summary breakdown of noninterest expense:

           
  Nine Months Ended September 30,    
(dollars in thousands) 2017 2016 $ Change % Change
Compensation and Benefits $  12,567 $  12,617 $  (50) (0.4%)
OREO Valuation Allowance and Expenses    623    609    14  2.3%
Operating Expenses    9,161    8,617    544  6.3%
Total Noninterest Expense $  22,351 $  21,843 $  508  2.3%
         

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

  

Balance Sheet and Asset Quality

Balance Sheet

Total assets at September 30, 2017 were $1.40 billion, an increase of $67.9 million or 6.8% annualized growth, compared to total assets of $1.33 billion at December 31, 2016. The increase in total assets was primarily attributable to growth in loans. Net loans increased $56.5 million, or 7.0% annualized growth, from $1,079.5 million at December 31, 2016 to $1,136.0 million at September 30, 2017, principally due to increases in the commercial real estate and residential rentals portfolios.

The following is a breakdown of the Company’s loan portfolio at September 30, 2017 and December 31, 2016:

          
(dollars in thousands) September 30, 2017 % December 31, 2016 % 
          
Commercial real estate $  712,840  62.24% $  667,105  61.25% 
Residential first mortgages    175,816  15.35%    171,004  15.70% 
Residential rentals    110,905  9.68%    101,897  9.36% 
Construction and land development    31,094  2.71%    36,934  3.39% 
Home equity and second mortgages    22,334  1.95%    21,399  1.97% 
Commercial loans    56,376  4.92%    50,484  4.64% 
Consumer loans    541  0.05%    422  0.04% 
Commercial equipment     35,500  3.10%    39,737  3.65% 
     1,145,406  100.00%    1,088,982  100.00% 
Less:         
Deferred loan fees and premiums    (1,033) -0.09%    (397) -0.04% 
Allowance for loan losses    10,435  0.91%    9,860  0.91% 
     9,402       9,463    
  $  1,136,004    $  1,079,519    
          

Deposits increased by 7.6% annualized, or $59.2 million, to $1,098.0 million at September 30, 2017 compared to $1,038.8 million at December 31, 2016.  The Company uses both traditional and reciprocal brokered deposits. Traditional brokered deposits at September 30, 2017 and December 31, 2016 were $137.6 million and $131.0 million, respectively. Reciprocal brokered deposits are used to maximize FDIC insurance available to our customers. Reciprocal brokered deposits at September 30, 2017 and December 31, 2016 were $99.6 million and $70.7 million, respectively. The following is a breakdown of the Company’s deposit portfolio at September 30, 2017 and December 31, 2016:

                               
   September 30, 2017 December 31, 2016 
 (dollars in thousands) Balance % Balance % 
 Noninterest-bearing demand $  157,665 14.36% $  144,877 13.95% 
 Interest-bearing:         
 Demand    195,632 17.82%    162,823 15.67% 
 Money market deposits    229,740 20.92%    248,049 23.88% 
 Savings    54,310 4.95%    50,284 4.84% 
 Certificates of deposit    460,654 41.95%    432,792 41.66% 
 Total interest-bearing    940,336 85.64%    893,948 86.05% 
           
 Total Deposits $  1,098,001 100.00% $  1,038,825 100.00% 
           
 Transaction accounts $   637,347  58.05% $   606,033  58.34% 
           

FHLB long-term debt and short-term borrowings increased $2.4 million from $144.6 million at December 31, 2016 to $147.0 million at September 30, 2017. 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.

During the nine months ended September 30, 2017, stockholders’ equity increased $6.5 million to $110.9 million. The increase in stockholders’ equity was due to net income of $7.7 million, a current year decrease in accumulated other comprehensive loss of $390,000 and net stock related activities related to stock-based compensation of $578,000. These increases to capital were partially offset by quarterly common dividends paid of $1.4 million and the purchases of 23,503 shares of the Company’s common shares for $823,000 by the Employee Stock Ownership Plan (“ESOP”) during the third quarter of 2017. The ESOP has promissory notes with the Company for the purchase of TCFC common stock for the benefit of the participants in the Plan. Loan terms are at prime rate plus one-percentage point and amortize over seven (7) years. As principal is repaid, common shares are allocated to participants based on the participant account allocation rules described in the Plan. The Bank is a guarantor of the ESOP debt with the Company. Unencumbered shares held by the ESOP are treated as outstanding in computing earnings per share. Shares issued to the ESOP but pledged as collateral for loans obtained to provide funds to acquire the shares are not treated as outstanding in computing earnings per share.

Common stockholders' equity of $110.9 million at September 30, 2017 resulted in a book value of $23.85 per common share compared to $22.54 at December 31, 2016. The Company remains well-capitalized at September 30, 2017 with a Tier 1 capital to average assets ratio of 8.82%.

Asset Quality

The Company continues to pursue its approach of maximizing contractual rights with individual classified customer relationships. The objective is to move non-performing or substandard credits that are not likely to become performing or passing credits in a reasonable timeframe off the balance sheet. The Company is encouraging existing customers with classified credits to obtain financing with other lenders or is enforcing its contractual rights. Management believes this strategy is in the best long-term interest of the Company. Because of these efforts, non-accrual loans and OREO to total assets have decreased from 1.83% at December 31, 2015, to 1.21% at December 31, 2016, and to 0.91% at September 30, 2017.  Non-accrual loans, OREO and TDRs to total assets decreased from 2.98% at December 31, 2015, to 1.99%, at December 31, 2016, and to 1.63% at September 30, 2017.

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 September 30, 2017, June 30, 2017, March 31, 2017 and December 31, 2016, 2015, 2014 and 2013, respectively:

                
 Classified Assets and Special Mention Assets  
 (dollars in thousands) As of
09/30/2017
 As of
06/30/2017
 As of
03/31/2017
 As of
12/31/2016
 As of
12/31/2015
 As of
12/31/2014
 As of
12/31/2013
 Classified loans              
 Substandard $  28,734  $  25,519  $  28,920  $  30,463  $  31,943  $  46,735  $  47,645 
 Doubtful    -     -     -     137     861     -     - 
 Loss    -     -     -     -     -     -     - 
 Total classified loans    28,734     25,519     28,920     30,600     32,804     46,735     47,645 
 Special mention loans    10,446     1,357     1,374     -     1,642     5,460     9,246 
 Total classified and special mention loans $  39,180  $  26,876  $  30,294  $  30,600  $  34,446  $  52,195  $  56,891 
                
 Classified loans    28,734     25,519     28,920     30,600     32,804     46,735     47,645 
 Classified securities    697     740     791     883     1,093     1,404     2,438 
 Other real estate owned    9,741     9,154     6,747     7,763     9,449     5,883     6,797 
 Total classified assets $  39,172  $  35,413  $  36,458  $  39,246  $  43,346  $  54,022  $  56,880 
                
 As a percentage of  Total Assets  2.79%  2.54%  2.69%  2.94%  3.79%  4.99%  5.56%
 As a percentage of Risk Based Capital  24.97%  22.81%  23.91%  26.13%  30.19%  39.30%  43.11%
                

The allowance for loan losses was 0.91% of gross loans at September 30, 2017 and December 31, 2016. 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 reductions in delinquency, were offset by increases in other qualitative factors, such as concentration to capital factors. The specific allowance is based on management’s estimate of realizable value for particular loans. Management believes that the allowance is adequate.

The following is a breakdown of the Company’s general and specific allowances as a percentage of gross loans at September 30, 2017 and December 31, 2016, respectively:

           
 (dollar in thousands) September 30, 2017 % of Gross
Loans
 December 31, 2016 % of Gross
Loans
 
           
 General Allowance $  9,617 0.84% $  8,571 0.79% 
 Specific Allowance    818 0.07%    1,289 0.12% 
 Total Allowance $  10,435 0.91% $  9,860 0.91% 
           

The historical loss experience factor is tracked over various time horizons for each portfolio segment. The following table provides net charge-offs as a percentage of average loans for the three and nine months ended September 30, 2017 and 2016, respectively, and a five-year trend:

                     
  Three Months Ended September 30, Nine Months Ended September 30, Years Ended December 31,
(dollars in thousands) 2017  2016   2017  2016   2016   2015   2014   2013   2012 
Average loans $  1,127,626  $  1,016,408   $  1,107,618  $  967,568   $  988,288  $  874,186  $  819,381  $  741,369  $  719,798 
Net charge-offs    223     141      405     566      1,039     1,374     2,309     1,049     1,937 
Net charge-offs to average loans  0.08%  0.06%   0.05%  0.08%   0.11%  0.16%  0.28%  0.14%  0.27%
                     

About The Community Financial Corporation - The Company is the bank holding company for Community Bank of the Chesapeake. Headquartered in Waldorf, Maryland, Community Bank of the Chesapeake is a full-service commercial bank, with assets over $1.4 billion.  Through its 11 branches and five commercial lending centers, Community Bank of the Chesapeake offers a broad range of financial products and services to individuals and businesses. The Company’s branches are located at its main office in Waldorf, Maryland, and 10 branch offices in Waldorf, Bryans Road, Dunkirk, Leonardtown, La Plata, Charlotte Hall, Prince Frederick, Lusby and California, Maryland; and downtown Fredericksburg, Virginia.

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 involve risks and uncertainties that could cause actual results to differ materially from those anticipated by the statements made herein. These risks and uncertainties involve 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, 2016, 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 September 30, 2017. 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, 2016. 

     

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 September 30, Nine Months Ended September 30, 
(dollars in thousands, except per share amounts ) 2017  2016  2017  2016  
Interest and Dividend Income         
Loans, including fees $  12,671 $  11,460 $  37,051 $  33,175  
Interest and dividends on investment securities    988    758    2,907    2,273  
Interest on deposits with banks    21    5    39    15  
Total Interest and Dividend Income    13,680    12,223    39,997    35,463  
          
Interest Expense         
Deposits    1,563    1,209    4,234    3,486  
Short-term borrowings    304    36    734    123  
Long-term debt    805    834    2,414    2,422  
Total Interest Expense    2,672    2,079    7,382    6,031  
          
Net Interest Income    11,008    10,144    32,615    29,432  
Provision for loan losses    224    698    980    1,689  
Net Interest Income After Provision For Loan Losses     10,784    9,446    31,635    27,743  
          
Noninterest Income         
Loan appraisal, credit, and miscellaneous charges    28    60    84    223  
Gain on sale of asset    -    -    47    4  
Net gains (losses) on sale of OREO    -    3    36    (440) 
Net gains on sale of investment securities    -    -    133    39  
Income from bank owned life insurance    196    199    581    593  
Service charges    639    580    1,909    2,050  
Gain on sale of loans held for sale    294    -    294    -  
Total Noninterest Income    1,157    842    3,084    2,469  
          
Noninterest Expense         
Salary and employee benefits    4,056    4,268    12,567    12,617  
Occupancy expense    630    597    1,941    1,822  
Advertising    156    290    404    509  
Data processing expense    555    544    1,766    1,678  
Professional fees    749    308    1,684    1,113  
Depreciation of furniture, fixtures, and equipment    191    206    594    608  
Telephone communications    46    43    142    133  
Office supplies    26    33    86    105  
FDIC Insurance    178    215    505    642  
OREO valuation allowance and expenses    283    203    623    609  
Other    572    604    2,039    2,007  
Total Noninterest Expense    7,442    7,311    22,351    21,843  
          
Income before income taxes    4,499    2,977    12,368    8,369  
Income tax expense    1,717    1,014    4,701    3,060  
Net Income $  2,782 $  1,963 $  7,667 $  5,309  
          
Earnings Per Common Share         
Basic $  0.60 $  0.43 $  1.66 $  1.16  
Diluted $  0.60 $  0.42 $  1.65 $  1.15  
Cash dividends paid per common share $  0.10 $  0.10 $  0.30 $  0.30  
          

 

THE COMMUNITY FINANCIAL CORPORATION
AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME 
UNAUDITED
                        
 For the Three Months Ended September 30, For the Nine Months Ended September 30,
  2017   2016   2017   2016 
     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$  1,127,626 $ 12,671 4.49% $  1,016,408 $ 11,460 4.51% $ 1,107,618 $ 37,051 4.46% $  967,568 $ 33,175 4.57%
Investment securities, federal funds                       
sold and interest-bearing deposits   176,360    1,009 2.29%    153,443    763 1.99%    174,813    2,946 2.25%    155,033    2,288 1.97%
Total Interest-Earning Assets   1,303,986   13,680 4.20%    1,169,851   12,223 4.18%   1,282,431   39,997 4.16%   1,122,601   35,463 4.21%
Cash and cash equivalents   18,199        13,166        14,555        11,567    
Other assets   74,274        71,948        72,597        72,384    
Total Assets$ 1,396,459      $ 1,254,965      $ 1,369,583      $ 1,206,552     
                        
Liabilities and Stockholders' Equity                       
Interest-bearing liabilities:                       
Savings$  55,125 $  7 0.05% $  50,363 $  6 0.05% $  53,369 $  20 0.05% $  48,290 $  32 0.09%
Interest-bearing demand and money                       
market accounts   429,847    412 0.38%    400,214    297 0.30%    418,148    1,073 0.34%    371,113    837 0.30%
Certificates of deposit   443,048    1,144 1.03%    412,683    904 0.88%    442,410    3,141 0.95%    407,731    2,616 0.86%
Long-term debt   58,019    352 2.43%    65,578    386 2.35%    59,783    1,028 2.29%    58,804    1,083 2.46%
Short-term debt   96,908    304 1.25%    31,886    37 0.46%    90,460    734 1.08%    33,471    123 0.49%
Subordinated Notes   23,000    359 6.24%    23,000    359 6.24%    23,000    1,078 6.25%    23,000    1,078 6.25%
Guaranteed preferred beneficial interest                       
in junior subordinated debentures   12,000    94 3.13%    12,000    90 3.00%    12,000    308 3.42%    12,000    262 2.91%
                        
Total Interest-Bearing Liabilities   1,117,947   2,672 0.96%    995,724   2,079 0.84%    1,099,170   7,382 0.90%    954,409   6,031 0.84%
                        
Noninterest-bearing demand deposits   156,746        144,837        150,757        140,031    
Other liabilities   10,409        9,419        10,700        9,336    
Stockholders' equity   111,357        104,985        108,956        102,776    
Total Liabilities and Stockholders' Equity$   1,396,459      $   1,254,965      $   1,369,583      $   1,206,552     
                        
Net interest income  $ 11,008     $ 10,144     $ 32,615     $ 29,432  
                        
Interest rate spread    3.24%     3.34%     3.26%     3.37%
Net yield on interest-earning assets    3.38%     3.47%     3.39%     3.50%
Ratio of average interest-earning                       
assets to average interest bearing                       
liabilities    116.64%     117.49%     116.67%     117.62%
                        
Cost of funds    0.84%     0.73%     0.79%     0.73%
Cost of deposits    0.58%     0.48%     0.53%     0.48%
Cost of debt    2.34%     2.63%     2.27%     2.67%
                        
Note: Loan average balance includes non-accrual loans. There are no tax equivalency adjustments. 

 

THE COMMUNITY FINANCIAL CORPORATION       
CONSOLIDATED BALANCE SHEETS     
      
  September 30, 2017   
(dollars in thousands, except per share amounts) (Unaudited) December 31, 2016 
Assets     
Cash and due from banks $  15,627  $  9,948  
Interest-bearing deposits with banks    1,577     1,315  
Securities available for sale (AFS), at fair value    61,376     53,033  
Securities held to maturity (HTM), at amortized cost    104,530     109,247  
Federal Home Loan Bank (FHLB) stock - at cost    7,447     7,235  
Loans receivable - net of allowance for loan losses of $10,435 and $9,860    1,136,004     1,079,519  
Premises and equipment, net    21,751     22,205  
Premises and equipment held for sale    -     345  
Other real estate owned (OREO)    9,741     7,763  
Accrued interest receivable    4,494     3,979  
Investment in bank owned life insurance    29,206     28,625  
Other assets    10,419     11,043  
Total Assets $  1,402,172  $  1,334,257  
      
Liabilities and Stockholders' Equity     
Liabilities     
Deposits     
Non-interest-bearing deposits $  157,665  $  144,877  
Interest-bearing deposits    940,336     893,948  
Total deposits    1,098,001     1,038,825  
Short-term borrowings    91,500     79,000  
Long-term debt    55,514     65,559  
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    11,272     11,447  
Total Liabilities    1,291,287     1,229,831  
      
Stockholders' Equity     
Common stock - par value $.01; authorized - 15,000,000 shares; issued 4,649,302 and 4,633,868 shares, respectively    46     46  
Additional paid in capital    47,994     47,377  
Retained earnings    64,375     58,100  
Accumulated other comprehensive loss    (538)    (928) 
Unearned ESOP shares    (992)    (169) 
Total Stockholders' Equity    110,885     104,426  
Total Liabilities and Stockholders' Equity $  1,402,172  $  1,334,257  
      

 

THE COMMUNITY FINANCIAL CORPORATION       
SELECTED CONSOLIDATED FINANCIAL DATA       
     
   Three Months Ended (Unaudited)   Nine Months Ended (Unaudited) 
  September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016 
KEY OPERATING RATIOS         
Return on average assets     0.80%   0.63%   0.75 %   0.59 %
Return on average common equity    9.99    7.48    9.38     6.89  
Average total equity to average total assets    7.97    8.37    7.96     8.52  
Interest rate spread    3.24    3.34    3.26     3.37  
Net interest margin     3.38    3.47    3.39     3.50  
Cost of funds    0.84    0.73    0.79     0.73  
Cost of deposits    0.58    0.48    0.53     0.48  
Cost of debt    2.34    2.63    2.27     2.67  
Efficiency ratio     61.18    66.55    62.61     68.47  
Non-interest expense to average assets    2.13    2.33    2.18     2.41  
Net operating expense to average assets    1.80    2.06    1.88     2.14  
Avg. int-earning assets to avg. int-bearing liabilities    116.64    117.49    116.67     117.62  
Net charge-offs to average loans    0.08    0.06    0.05     0.08  
COMMON SHARE DATA         
Basic net income per common share $  0.60 $  0.43 $  1.66  $  1.16  
Diluted net income per common share    0.60    0.42    1.65     1.15  
Cash dividends paid per common share    0.10    0.10    0.30     0.30  
Weighted average common shares outstanding:         
Basic    4,633,391    4,590,664    4,631,571     4,591,926  
Diluted    4,633,417    4,622,579    4,633,500     4,621,628  
          
  (Unaudited)       
(dollars in thousands, except per share amounts) September 30, 2017 December 31, 2016 $ Change % Change 
ASSET QUALITY         
Total assets $  1,402,172 $  1,334,257 $  67,915     5.1 %
Gross loans    1,145,406    1,088,982    56,424     5.2  
Classified Assets    39,172    39,246    (74)    (0.2) 
Allowance for loan losses    10,435    9,860    575     5.8  
          
Past due loans (PDLs) (31 to 89 days)    1,642    1,034    608     58.8  
Nonperforming loans (NPLs) (>=90 days)    2,741    7,705    (4,964)    (64.4) 
          
Non-accrual loans (a)    3,012    8,374    (5,362)    (64.0) 
Accruing troubled debt restructures (TDRs) (b)    10,069    10,448    (379)    (3.6) 
Other real estate owned (OREO)    9,741    7,763    1,978     25.5  
Non-accrual loans, OREO and TDRs $  22,822 $  26,585 $  (3,763)    (14.2) 
ASSET QUALITY RATIOS         
Classified assets to total assets    2.79%   2.94%    
Classified assets to risk-based capital    24.97    26.13     
Allowance for loan losses to total loans    0.91    0.91     
Allowance for loan losses to nonperforming loans    380.70    127.97     
Past due loans (PDLs) to total loans     0.14    0.09     
Nonperforming loans (NPLs) to total loans    0.24    0.71     
Loan delinquency (PDLs + NPLs) to total loans    0.38    0.80     
Non-accrual loans to total loans     0.26    0.77     
Non-accrual loans and TDRs to total loans     1.14    1.73     
Non-accrual loans and OREO to total assets    0.91    1.21     
Non-accrual loans, OREO and TDRs to total assets     1.63    1.99     
COMMON SHARE DATA         
Book value per common share $  23.85 $  22.54     
Common shares outstanding at end of period    4,649,302    4,633,868     
OTHER DATA         
Full-time equivalent employees    169    162     
Branches  11  12     
Loan Production Offices  5  5     
REGULATORY CAPITAL RATIOS          
Tier 1 capital to average assets    8.82%   9.02%    
Tier 1 common capital to risk-weighted assets    9.81    9.54     
Tier 1 capital to risk-weighted assets    10.87    10.62     
Total risk-based capital to risk-weighted assets    13.81    13.60     
          
          
(a) Non-accrual loans include all loans that are 90 days or more delinquent and loans that are non-accrual due to the operating results or cash flows of a customer. Non-accrual loans can include loans that are current with all loan payments.
          
(b)  At September 30, 2017 and December 31, 2016, the Bank had total TDRs of $10.9 million and $15.1 million, respectively, with $828,000 and $4.7 million, respectively, in non-accrual status. These loans are classified as non-accrual loans for the calculation of financial ratios. 

 

THE COMMUNITY FINANCIAL CORPORATION 
SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED) 
  
 Three Months Ended  
  September 30, June 30, March 31, December 31, September 30, 
(dollars in thousands, except per share amounts )  2017  2017  2017  2016   2016 
Interest and Dividend Income           
Loans, including fees $  12,671 $  12,410 $  11,970 $  11,744  $  11,460 
Interest and dividends on securities    988    973    946    835     758 
Interest on deposits with banks    21    12    6    5     5 
Total Interest and Dividend Income    13,680    13,395    12,922    12,584     12,223 
            
Interest Expense           
Deposits    1,563    1,403    1,269    1,210     1,209 
Short-term borrowings    304    283    147    73     36 
Long-term debt    805    776    832    828     834 
Total Interest Expense    2,672    2,462    2,248    2,111     2,079 
            
Net Interest Income (NII)    11,008    10,933    10,674    10,473     10,144 
Provision for loan losses    224    376    380    670     698 
            
NII After Provision For Loan Losses     10,784    10,557    10,294    9,803     9,446 
            
Noninterest Income           
Loan appraisal, credit, and misc. charges    28    9    47    66     60 
Gain on sale of asset    -    47    -    8     - 
Net gains (losses) on sale of OREO    -    9    27    4     3 
Net gains (losses) on sale of investment securities    -    133    -    (8)    - 
Income from bank owned life insurance    196    194    191    196     199 
Service charges    639    660    610    625     580 
Gain on sale of loans held for sale    294    -    -    -     - 
Total Noninterest Income    1,157    1,052    875    891     842 
            
Noninterest Expense           
Salary and employee benefits    4,056    4,198    4,313    4,193     4,268 
Occupancy expense    630    658    653    666     597 
Advertising    156    140    108    138     290 
Data processing expense    555    634    577    589     544 
Professional fees    749    598    337    455     308 
Depr.of furniture, fixtures, and equipment    191    204    199    204     206 
Telephone communications    46    45    51    41     43 
Office supplies    26    28    32    31     33 
FDIC Insurance    178    161    166    97     215 
OREO valuation allowance and expenses    283    145    195    252     203 
Other    572    719    748    650     604 
Total Noninterest Expense    7,442    7,530    7,379    7,316     7,311 
            
Income before income taxes    4,499    4,079    3,790    3,378     2,977 
Income tax expense    1,717    1,536    1,448    1,356     1,014 
Net Income  $  2,782 $  2,543 $  2,342 $  2,022  $  1,963 
            
  
THE COMMUNITY FINANCIAL CORPORATION 
SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED) - Continued 
  
 Three Months Ended  
  September 30, June 30, March 31, December 31, September 30, 
(dollars in thousands, except per share amounts )  2017  2017  2017  2016   2016 
KEY OPERATING RATIOS           
Return on average assets    0.80%   0.74%   0.70%   0.62 %   0.63%
Return on average common equity    9.99    9.36    8.78    7.68     7.48 
Average total equity to average total assets    7.97    7.91    7.98    8.11     8.37 
Interest rate spread    3.24    3.27    3.29    3.33     3.34 
Net interest margin    3.38    3.39    3.40    3.45     3.47 
Cost of funds    0.84    0.79    0.74    0.71     0.73 
Cost of deposits    0.58    0.53    0.48    0.47     0.48 
Cost of debt    2.34    2.22    2.24    2.26     2.63 
Efficiency ratio     61.18    62.83    63.89    64.38     66.55 
Non-interest expense to average assets    2.13    2.19    2.21    2.26     2.33 
Net operating expense to average assets    1.80    1.89    1.94    1.98     2.06 
Avg. int-earning assets to avg. int-bearing liabilities    116.64    117.07    116.29    117.37     117.49 
Net charge-offs to average loans    0.08    0.02    0.05    0.18     0.06 
COMMON SHARE DATA           
Basic net income per common share $  0.60 $  0.55 $  0.51 $  0.44  $  0.43 
Diluted net income per common share    0.60    0.55    0.51    0.44     0.42 
Cash dividends paid per common share    0.10    0.10    0.10    0.10     0.10 
Weighted average common shares outstanding:          
Basic    4,633,391    4,632,911    4,628,357    4,574,707     4,590,644 
Diluted    4,633,417    4,635,483    4,630,398    4,606,676     4,622,579 
            
ASSET QUALITY           
Total assets $  1,402,172 $  1,392,688 $  1,356,073 $  1,334,257  $  1,281,874 
Gross loans    1,145,406    1,142,010    1,113,742    1,088,982     1,051,419 
Classified Assets    39,172    35,413    36,458    39,246     40,234 
Allowance for loan losses    10,435    10,434    10,109    9,860     9,663 
            
Past due loans (PDLs) (31 to 89 days)    1,642    1,081    231    1,034     723 
Nonperforming loans (NPLs) (>=90 days)    2,741    3,782    7,168    7,705     7,778 
            
Non-accrual loans     3,012    4,442    7,830    8,374     8,455 
Accruing troubled debt restructures (TDRs)    10,069    10,228    10,264    10,448     10,595 
Other real estate owned (OREO)    9,741    9,154    6,747    7,763     8,620 
Non-accrual loans, OREO and TDRs $  22,822 $  23,824 $  24,841 $  26,585  $  27,670 
ASSET QUALITY RATIOS           
Classified assets to total assets    2.79%   2.54%   2.69%   2.94 %   3.14%
Classified assets to risk-based capital    24.97    22.81    23.91    26.13     27.08 
Allowance for loan losses to total loans    0.91    0.91    0.91    0.91     0.92 
Allowance for loan losses to nonperforming loans    380.70    275.89    141.03    127.97     124.24 
Past due loans (PDLs) to total loans     0.14    0.09    0.02    0.09     0.07 
Nonperforming loans (NPLs) to total loans    0.24    0.33    0.64    0.71     0.74 
Loan delinquency (PDLs + NPLs) to total loans    0.38    0.43    0.66    0.80     0.81 
Non-accrual loans to total loans     0.26    0.39    0.70    0.77     0.80 
Non-accrual loans and TDRs to total loans     1.14    1.28    1.62    1.73     1.81 
Non-accrual loans and OREO to total assets    0.91    0.98    1.07    1.21     1.33 
Non-accrual loans, OREO and TDRs to total assets     1.63    1.71    1.83    1.99     2.16 
            
COMMON SHARE DATA           
Book value per common share $  23.85 $  23.51 $  22.96 $  22.54  $  22.33 
Common shares outstanding at end of period    4,649,302    4,648,199    4,641,342    4,633,868     4,656,989 
            
OTHER DATA           
Full-time equivalent employees    169    165    165    162     166 
Branches    11    12    12    12     12 
Loan Production Offices    5    5    5    5     5 
            
REGULATORY CAPITAL RATIOS            
Tier 1 capital to average assets    8.82%   8.85%   8.91%   9.02  %    9.22 % 
Tier 1 common capital to risk-weighted assets    9.81    9.70    9.62    9.54     9.75 
Tier 1 capital to risk-weighted assets    10.87    10.77    10.69    10.62     10.87 
Total risk-based capital to risk-weighted assets    13.81    13.72    13.66    13.60     13.94