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The Community Financial Corporation Reports Operating Results for the Three Months Ended March 31, 2019

WALDORF, Md., April 22, 2019 (GLOBE NEWSWIRE) -- The Community Financial Corporation (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, 2019. The Company reported net income for the three months ended March 31, 2019 (“2019Q1”) of $3.9 million or diluted earnings per share of $0.70 compared to a net income for the first quarter of 2018 (“2018Q1”) of $1.2 million or a diluted earnings per share of $0.22. The 2018Q1 results included merger and acquisition costs net of tax of $2.1 million. Merger and acquisition costs did not impact earnings per share for 2019Q1. The Company’s return on average assets (“ROAA”) and return on average common equity (“ROACE”) were 0.91% and 9.85% in 2019Q1 compared to 0.31% and 3.33% in 2018Q1. For the three months ended December 31, 2018 (“2018Q4”), net income, diluted earnings per share, ROAA and ROACE were $3.8 million, $0.69, 0.93% and 10.01%, respectively.

The Company completed the acquisition of County First Bank (“County First”) on January 1, 2018, increasing the Company’s asset size by $200 million to just under $1.6 billion.  As of December 31, 2018, the Company’s assets were just under $1.7 billion. The Company closed four of the five acquired County First branches during May of 2018. The La Plata downtown branch remains open. County First closed its Fairfax, Virginia loan production office prior to the legal merger. The first six months of 2018 included operating expenses to support the merged operations with County First Bank. The closure of four branches and reductions in headcount during the second quarter of 2018 positively impacted the Company’s operating expense run rate in the second half of 2018.

“We continue to execute the Company’s strategy to grow interest-earning assets while controlling expenses. Average interest-earning assets increased $89.2 million or 6.0% (12.0% annualized) during the last six months to $1,577.1 million at March 31, 2019. The Company’s efficiency ratio at 59.6% has been below 60% for the last two quarters,” stated William J. Pasenelli, Chief Executive Officer and Vice-Chairman of the Board. “The Company’s profitability improved the last three quarters with ROAA exceeding 90 basis points, as we completed the integration of County First Bank, controlled expenses and increased loan balances.” 

Highlights at and for the three months ended March 31, 2019 include:

  • Gross loans increased 4.8% annualized or $16.2 million from $1,346.9 million at 2018Q4 to $1,363.2 million at 2019Q1.
     
  • The Company’s average contractual interest rates for loans continued to increase. Ending loan balances of $1,363.2 million at 2019Q1, included approximately $125 million in new loans generated in the prior six months with an average contractual interest rate of 4.95%, which is 27 basis points greater that the 4.68% contractual interest rate on the entire portfolio.
     
  • Loan yields on repricing and new loans increased during 2018 and continued during the first quarter of 2019, influenced by increases in the federal funds target rate and loan growth in higher yielding portfolios. End of period projected loan yields have increased since the third quarter of 2017. The following table is based on contractual interest rates and does not include the amortization of deferred costs and fees or assumptions regarding non-accrual interest:
Weighted End of Period Contractual Interest Rates                
    March 31, 2019   December 31, 2018   September 30, 2018   June 30, 2018   March 31, 2018
(dollars in thousands)   EOP Contractual
Interest rate
  EOP Contractual
Interest rate
  EOP Contractual
Interest rate
  EOP Contractual
Interest rate
  EOP Contractual
Interest rate
                     
Commercial real estate   4.63 %   4.61 %   4.56 %   4.55 %   4.50 %
Residential first mortgages   3.94 %   3.93 %   3.90 %   3.91 %   3.88 %
Residential rentals   4.79 %   4.77 %   4.75 %   4.76 %   4.72 %
Construction and land development   5.41 %   5.32 %   5.13 %   5.22 %   5.11 %
Home equity and second mortgages   5.62 %   5.39 %   5.14 %   5.14 %   4.83 %
Commercial loans   5.91 %   5.76 %   5.59 %   5.53 %   5.34 %
Consumer loans   6.88 %   6.93 %   6.91 %   6.83 %   6.64 %
Commercial equipment    4.54 %   4.52 %   4.47 %   4.47 %   4.43 %
Total Loans   4.68 %   4.64 %   4.57 %   4.56 %   4.50 %
  • Total deposits increased $9.5 million or 0.67% to $1,439.2 million at 2019Q1 compared to 2018Q4. The Bank typically experiences transaction deposit runoff during the first quarter as our business customers use transaction account balances to pay expenses and taxes accrued in the prior year.  Transaction accounts decreased $13.3 million in first quarter of 2019 while time deposits increased $22.8 million. In addition, average non-interest bearing transaction accounts decreased $9.0 million during 2019Q1.
     
  • The slight change in the deposit mix contributed to the increase in the average deposit cost of funds of eight basis points from 0.99% in 2018Q4 to 1.07% in 2019Q1. Based on recent deposit trends, management believes that the cost of funds will be stable during the second quarter of 2019 and is optimistic that net interest margin will expand slightly due to the repricing of loans and increasing yields on new loan volume. End of period deposit costs were 1.06% at March 31, 2019 compared to a 1.07% average cost of deposits for the three months ended March 31, 2019.
     
  • Net interest margin declined four basis points from 3.35% in 2018Q4 to 3.31% in 2019Q1. Net interest income increased $212,000 to $13.0 million in 2019Q1 compared to $12.8 million in 2018Q4.. Accretion interest and nonaccrual interest impacted (increased) net interest margin by three basis points and four basis points in 2018Q4 and 2019Q1, respectively.
     
  • Net income increased $63,000 to $3.9 million, or $0.70 per share, compared to $3.8 million, or $0.69 per share, in the prior quarter. The Company’s ROAA and ROACE were 0.91% and 9.85% in 2019Q1 compared to 0.93% and 10.01% in the prior quarter. The Company had no material adjustments to operating net income1 in 2019Q1 and 2018Q4 and operating earnings per share, operating ROAA and operating ROACE were the same, except for a one basis point difference for ROACE in 2018Q4, which was 10.02%. The flatness in earnings was primarily the result of increased net interest income being offset by increased noninterest expense. The Company’s expense run rate for the first quarter of 2019 increased as expected. The Company’s quarterly expense run rate is expected to range between $8.6 and $8.8 million for remaining quarters of 2019.
  THE COMMUNITY FINANCIAL CORPORATION
    Three Months Ended      
dollars in thousands   March 31, 2019   December 31, 2018   $ Variance   % Variance
Operations Data:                
Interest and dividend income   $ 17,797   $ 17,042   $ 755     4.4 %
Interest expense     4,760     4,217     543     12.9 %
Net interest income     13,037     12,825     212     1.7 %
Provision for loan losses     500     465     35     7.5 %
Noninterest income     1,061     1,066     (5 )   (0.5 %)
Noninterest expense     8,405     8,241     164     2.0 %
Income before income taxes     5,193     5,185     8     0.2 %
Income tax expense     1,316     1,371     (55 )   (4.0 %)
Net income   $ 3,877   $ 3,814   $ 63     1.7 %
 
  • Operating net income increased $521,000 or 15.5% to $3.9 million in 2019Q1 compared to $3.4 million in 2018Q1. The Company’s operating ROAA and operating ROACE were 0.91% and 9.85% in 2019Q1 compared to 0.85% and 9.15% in 2018Q1. Operating diluted earnings per share were $0.70 and $0.61, respectively, for the comparable periods. Improved earnings were the result of a change in the funding composition of the Bank’s interest-bearing liabilities; the control of operating costs; and organic loan growth.
     
  • Noninterest expense of $8.4 million in 2019Q1 increased $164,000 compared to $8.2 million in the prior quarter, primarily due to an increases in salary and benefits and professional fees, partially offset by lower OREO expenses. Salary and benefits and professional fees were in line with management expectations for the first quarter of 2019. Salaries and benefits are expected to increase between two and four percent in 2019. The higher range is based on Company meeting incentive plan targets.  We believe the Company’s quarterly expense run rate will range between $8.6 and $8.8 million for remaining quarters of 2019. The following is a summary breakdown of noninterest expenses comparing 2019Q1 and 2018Q4:
    Three Months Ended        
(dollars in thousands)   March 31, 2019   December 31, 2018   $ Change
    % Change  
Salary and employee benefits   $ 4,803   $ 4,633   $ 170     3.7 %
OREO Valuation Allowance and Expenses     56     141     (85 )   (60.3 %)
Merger and acquisition costs     -     5     (5 )   (100.0 %)
Operating Expenses     3,546     3,462     84     2.4 %
Total Noninterest Expense   $ 8,405   $ 8,241   $ 164     2.0 %
  • The GAAP efficiency ratio was 59.62% in 2019Q1 compared to 59.33% in 2018Q4. The non-GAAP (or “operating”) efficiency ratio2, which excludes merger and acquisition costs, OREO gains and losses and other non-core activities, was 59.46% in 2019Q1 compared to 58.30% in 2018Q4.
     
  • Nonperforming assets improved in the first quarter of 2019. Classified assets as a percentage of assets improved in 2019Q1, decreasing 34 basis points from 2.42% at December 31, 2018 to 2.08% at March 31, 2019. Non-accrual loans, OREO and TDRs to total assets decreased 18 basis points in 2019Q1 to 1.84% at March 31, 2019 compared to 2.02% at December 31, 2018.

Net Income

The Company reported net income for 2019Q1 of $3.9 million or diluted earnings per share of $0.70 compared to a net income of $1.2 million or $0.22 per diluted share for 2018Q1.  These results included merger and acquisition costs net of tax of $2.1 million for 2018Q1.  There were no merger and acquisition costs in 2019Q1 and no impact to earnings per share. In 2018Q1, quarterly earnings per share decreased $0.39 per share as a result of merger and acquisition costs. The Company’s ROAA and ROACE were 0.91% and 9.85% in 2019Q1 compared to 0.31% and 3.33% in 2018Q1.

The $2.7 million increase to net income in 2019Q1 compared to 2018Q1 was primarily due to decreased noninterest expense of $3.3 million, of which $2.9 million related to merger and acquisition costs incurred during 2018Q1. In addition, the Company’s 2019Q1 expense run rate was $394,000 lower than 2018Q1 for all other noninterest expenses. The Company began to realize cost savings from the County First acquisition in the second half of 2018 with the closing of four branches and an operations center, an overall reduction in headcount and the elimination of duplicate processes and vendors. In addition, net interest income and noninterest income increased $177,000 comparing 2019Q1 to 2018Q1. Net income decreased due to increased income tax expense of $783,000 for the comparable periods.

The Company reported operating net income3 of $3.9 million, or $0.70 per share in 2019Q1. This compares to operating net income of $3.4 million, or $0.61 per share, in 2018Q1.

Net Interest Income

Net interest income increased 1.1% or $147,000 to $13.0 million in 2019Q1 compared to $12.9 million in 2018Q1. Net interest margin at 3.31% in 2019Q1 decreased 23 basis points from 3.54% in 2018Q1. Average interest-earning assets were $1,577.1 million for the first  quarter of 2019, an increase of $120.2 million or 8.2%, compared to $1,456.9 million for the same quarter of 2018. Accretion interest and nonaccrual interest impacted (increased) net interest margin by four basis points and 10 basis points in 2019Q1 and 2018Q1, respectively. For the three months ended March 31, 2019 and 2018, the below table provides information on the impact of changes in volume and rate:

  For the Three Months Ended March 31, 2019
  compared to the Three Months Ended
  March 31, 2018
      Due to    
dollars in thousands Volume   Rate   Total
           
Interest income:          
Loan portfolio (1) $ 855     $ 548     $ 1,403  
Investment securities, federal funds          
sold and interest bearing deposits   351       150       501  
Total interest-earning assets $ 1,206     $ 698     $ 1,904  
           
Interest-bearing liabilities:          
Savings   (1 )     6       5  
Interest-bearing demand and money          
market accounts   459       703       1,162  
Certificates of deposit   (88 )     733       645  
Long-term debt   (214 )     75       (139 )
Short-term debt   (154 )     205       51  
Subordinated notes   -       -       -  
Guaranteed preferred beneficial interest          
in junior subordinated debentures   -       33       33  
Total interest-bearing liabilities $ 2     $ 1,755     $ 1,757  
Net change in net interest income $ 1,204     $ (1,057 )   $ 147  
           
(1) Average balance includes non-accrual loans

Noninterest Income and Noninterest Expense

Noninterest income was essentially flat at $1.1 million in 2019Q1 increasing a modest $30,000 compared to 2018Q1. The increase was primarily due to unrealized gains of $56,000 on equity securities partially offset by small decreases in income from Bank Owned Life Insurance (“BOLI”) and service charges.

Noninterest expenses decreased $3.3 million or 28.0%, to $8.4 million in 2019Q1 compared to $11.7 million in 2018Q1, of which $2.9 million of the variance was due to merger and acquisition costs incurred during 2018Q1. The Company’s 2019Q1 expense run rate of $8.4 million was positively impacted by the increased efficiencies from the County First acquisition and management’s continued focus on containing expense growth. In addition, OREO charges were low at $56,000 during 2019Q1, which contributed to lower expenses.  Adjusted noninterest expense, which excludes merger-related expenses and OREO related expenses decreased $336,000, or 3.9%, to $8.3 million in 2019Q1 compared to $8.7 million in 2018Q1. Overall the decreases in adjusted noninterest expenses comparing 2019Q1 to 2018Q1 were due primarily to decreases in salary and employee benefits of $244,000 related to the reduction of County First employee head count in the second half of 2018.

The Company’s GAAP efficiency ratio was 59.62% in 2019Q1 compared to 83.81% in 2018Q1. The operating efficiency ratio, which excludes merger and acquisition costs, OREO gains and losses and other non-core activities, was 59.46% and 62.39% for the same periods. The Company’s GAAP net operating expense ratio was 1.73% in 2019Q1 compared to 2.69% in 2018Q1. 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 1.73% and 1.94% for the same periods.

The following is a summary breakdown of noninterest expense:

    Three Months Ended March 31,        
(dollars in thousands)     2019     2018   $ Change
    % Change  
Salary and employee benefits   $ 4,803   $ 5,047     (244 )   (4.8 %)
OREO Valuation Allowance and Expenses     56     114     (58 )   (50.9 %)
Merger and acquisition costs     -     2,868     (2,868 )   (100.0 %)
Operating Expenses     3,546     3,638     (92 )   (2.5 %)
Total Noninterest Expense   $ 8,405   $ 11,667   $ (3,262 )   (28.0 %)

Balance Sheet
Total assets increased $22.7 million, or 1.3%, to $1.71 billion at 2019Q1 compared to total assets of $1.69 billion at 2018Q4 primarily due to increases in net loans and investments of $16.5 million and $7.8 million, respectively, an increase in OREO of $2.8 million and $10.0 million in right of use assets for operating leases recorded in accordance with the new lease standard which was effective for the Company on January 1, 2019. These increases were partially offset by decreases of  $13.3 million in cash and a net reduction in assets not specifically identified of $1.1 million.  The Company loan pipeline was approximately $120 million at March 31, 2019.

The following is a breakdown of growth by portfolio from 2018Q4 to 2019Q1.

                      Annualized
BY LOAN TYPE   March 31, 2019   %   December 31, 2018   %   $ Change % Change
                       
Commercial real estate   $ 891,165   65.37 %   $ 878,016   65.18 %   $ 13,149   5.99 %
Residential first mortgages     156,653   11.49 %     156,709   11.63 %     (56 ) -0.14 %
Residential rentals     124,518   9.13 %     124,298   9.23 %     220   0.71 %
Construction and land development     32,798   2.41 %     29,705   2.21 %     3,093   41.65 %
Home equity and second mortgages     36,746   2.70 %     35,561   2.64 %     1,185   13.33 %
Commercial loans     70,725   5.19 %     71,680   5.32 %     (955 ) -5.33 %
Consumer loans     851   0.06 %     751   0.06 %     100   53.26 %
Commercial equipment     49,720   3.65 %     50,202   3.73 %     (482 ) -3.84 %
Gross loans     1,363,176   100.00 %     1,346,922   100.00 %     16,254   4.83 %
Net deferred costs (fees)     1,261   0.09 %     1,183   0.09 %     78   26.37 %
Total loans, net of deferred costs   $ 1,364,437       $ 1,348,105       $ 16,332   4.85 %

The acquisition of County First and 2018 organic loan growth shifted the composition of the loan portfolios during 2018.  The overall increase in the commercial real estate portfolio from 63.25% of gross loans at 2017Q4 to 65.37% at 2019Q1 and 65.18% at 2018Q4 should increase asset sensitivity over time. The relative decrease in residential first mortgage balances should also increase asset interest rate sensitivity in a rising rate environment. Regulatory concentrations for non-owner occupied commercial real estate and construction at 2019Q1 were $577.4 million or 304.2% and $114.3 million or 60.2%, respectively.

During the first quarter 2019 growth in the non-acquired loan portfolios increased $21.8 million or at a 7.0% annualized rate. The following is a breakdown of the Company’s non-acquired loan portfolios at March 31, 2019:

        Quarter Growth        
Non-Acquired Loan Portfolios               Annualized
(dollars in thousands)   March 31, 2019   December 31, 2018   $ Change   % Change
                 
Commercial real estate   $ 827,531   $ 810,248   $ 17,283     8.53 %
Residential first mortgages     156,185     156,243     (58 )   -0.15 %
Residential rentals     105,207     105,458     (251 )   -0.95 %
Construction and land development     32,798     29,705     3,093     41.65 %
Home equity and second mortgages     23,438     21,703     1,735     31.98 %
Commercial loans     69,925     70,146     (221 )   -1.26 %
Consumer loans     701     562     139     98.93 %
Commercial equipment     46,028     45,970     58     0.50 %
    $ 1,261,813   $ 1,240,035   $ 21,778     7.02 %

Loans consist of the following at March 31, 2019 and December 31, 2018:

                   
BY ACQUIRED AND NON-ACQUIRED     March 31, 2019   %   December 31, 2018   %
                   
Acquired loans - performing     $ 98,136   7.20 %   $ 103,667   7.70 %
Acquired loans - purchase credit impaired ("PCI")       3,227   0.24 %     3,220   0.24 %
Total acquired loans       101,363   7.44 %     106,887   7.94 %
Non-acquired loans**       1,261,813   92.56 %     1,240,035   92.06 %
Gross loans       1,363,176         1,346,922    
Net deferred costs (fees)       1,261   0.09 %     1,183   0.09 %
Total loans, net of deferred costs     $ 1,364,437       $ 1,348,105    
                   
** Non-acquired loans include loans transferred from acquired pools following release of acquisition accounting FMV adjustments.

At 2019Q1 acquired performing loans, which totaled $98.1 million, included a $1.7 million net acquisition accounting fair market value adjustment, representing a 1.70% “mark” and PCI loans which totaled $3.2 million, included a $694,000 adjustment, representing a 17.70% “mark.”

Total deposits increased $9.5 million or 0.67% to $1,439.2 million at 2019Q1 compared to 2018Q4. The Bank typically experiences transaction deposit runoff during the first quarter as our business customers use transaction account balances to pay operating expense and taxes accrued in the prior year. As a result of anticipated seasonality, transaction accounts decreased $13.3 million in the first quarter of 2019 while time deposits increased $22.8 million. Noninterest bearing demand deposits increased $5.0 million, or 2.4%, to $214.4 million (14.9% of total deposits). Transaction deposit accounts decreased from $982.6 million (68.7% of deposits) at 2018Q4 to $969.3 million (67.3% of deposits) at 2019Q1. Reciprocal deposits4 are used to maximize FDIC insurance available to our customers. Reciprocal deposits increased $4.3 million or 1.8% to $239.2 million at 2019Q1 compared to $234.9 million at 2018Q4.

At 2019Q1 and 2018Q4 total deposits consisted of $1,380.6 million and $1,376.5 million in retail deposits and $58.6 million and  $53.1 million in brokered deposits. The Bank increased retail deposits $389.3 million  or 39.4% during 2018 to $1,376.5 million at December 31, 2018 as a result of the acquisition of County First and growth in organic deposits, largely due to growth in municipal relationships. Municipal accounts include treasury and cash management services with blended funding as well as other services and products such as payroll, lock box services, positive pay, and automated clearing house transactions. The diversity of products and services safeguard the stability of the relationships.  Most of the municipal relationships’ balances are maintained in reciprocal deposits. To ensure available liquidity the Company has enhanced procedures to track municipal deposit concentrations and manage the impact of seasonal balance fluctuations.  

At 2019Q1 the Company has on-balance sheet liquidity of $152.6 million, which consists of cash and cash equivalents, available for sale (“AFS”) securities and equity securities carried at fair value through income. The Company generally does not pledge AFS securities. The Company had $212.2 million in available FHLB lines at March 31, 2019, which does not include any pledged AFS securities. In addition, there was $50.6 million in unpledged held-to-maturity securities available for pledging.

Wholesale funding as a percentage of assets remained flat at 6.66% or $114.0 million at 2019Q1 compared to 6.43% or $108.5 million at 2018Q4.  Wholesale funding includes brokered deposits and Federal Home Loan Bank (“FHLB”) advances. Wholesale funding has decreased from 18.63% at December 31, 2017 (“2017Q4”) because of the Bank’s increased liquidity from organic deposit growth and the 2018 acquisition. Liquidity improved with the increase in transaction deposits and decrease in wholesale funding that began in 2018. The Company’s net loan to deposit ratio decreased from 103.1% at 2017Q4 to 94.0% in 2019Q1 and 93.5% at 2018Q4. 

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. Brokered deposits increased $5.5 million or 10.3% to $58.6 million at 2019Q1 compared to $53.1 million at 2018Q4. Federal Home Loan Bank (“FHLB”) long-term debt and short-term borrowings (“advances”) were flat at $55.4 million at 2019Q1 and 2018Q4. Wholesale funding, which includes brokered deposits and FHLB advances, increased $5.5 million from $108.5 million (6.4% of assets) at 2018Q4 to $114.0 million (6.7% of assets) at 2019Q1.

Total stockholders’ equity increased $4.6 million, or 3.0%, to $159.1 million at 2019Q1 compared to $154.5 million at 2018Q4. This increase primarily resulted from net income of $3.9 million, a decrease in accumulated other comprehensive losses of $1.4 million and net stock related activities in connection with stock-based compensation and ESOP activity of $34,000. These increases to stockholders’ equity were partially offset by decreases due to common dividends paid of $669,000, and repurchases of common stock of $17,000. The Company increased its quarterly dividend from $0.10 in 2018Q4 to $0.125 in 2019Q1. The Company’s ratio of tangible common equity to tangible assets increased to 8.57% at 2019Q1 from 8.41% at 2018Q45. The Company’s Common Equity Tier 1 (“CET1”) ratio was 10.39% at 2019Q1 compared to 10.36% at 2018Q4. The Company remains well capitalized at March 31, 2019 with a Tier 1 capital to average assets (leverage ratio) of 9.41% at 2019Q1 compared to 9.50% at 2018Q4.

Asset Quality

Non-accrual loans and OREO to total assets decreased from 1.62% at 2018Q4 to 1.45% at 2019Q1.  Non-accrual loans, OREO and TDRs to total assets decreased from 2.02% at 2018Q4 to 1.84% at 2019Q1. 

Non-accrual loans decreased $5.5 million from $19.3 million at 2018Q4 to $13.8 million at 2019Q1. At 2019Q1, $10.9 million or 79% of total non-accruals of $13.8 million relate to four customer relationships.  At 2018Q4, $15.3 million or 79% of total non-accruals of $19.3 million related to four customer relationships. The decrease in non-accrual loans during the first quarter, was largely the result of approximately $3.8 million of one classified relationship that was moved into OREO. In addition, a $1.8 million non-accrual loan was sold at carrying value with no charge-offs in 2019Q1. Non-accrual loans of $8.1 million (58%) were current with all payments of principal and interest with no impairment at 2019Q1. Delinquent non-accrual loans were $5.7 million (42%) with specific reserves of $893,000 at 2019Q1.

Classified assets decreased $5.1 million from $40.8 million at 2018Q4 to $35.7 million at 2019Q1. 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, 2019 and December 31, 2018, 2017, 2016 and 2015, respectively:

Classified Assets and Special Mention Assets
(dollars in thousands)   As of
3/31/2019
  As of
12/31/2018
  As of
12/31/2017
  As of
12/31/2016
  As of
12/31/2015
Classified loans                    
Substandard   $ 24,277     $ 32,226     $ 40,306     $ 30,463     $ 31,943  
Doubtful     -       -       -       137       861  
Loss     -       -       -       -       -  
Total classified loans     24,277       32,226       40,306       30,600       32,804  
Special mention loans     -       -       96       -       1,642  
Total classified and special mention loans   $ 24,277     $ 32,226     $ 40,402     $ 30,600     $ 34,446  
                     
Classified loans     24,277       32,226       40,306       30,600       32,804  
Classified securities     465       482       651       883       1,093  
Other real estate owned     10,949       8,111       9,341       7,763       9,449  
Total classified assets   $ 35,691     $ 40,819     $ 50,298     $ 39,246     $ 43,346  
                     
Total classified assets as a
  percentage of total assets
    2.08 %     2.42 %     3.58 %     2.94 %     3.79 %
Total classified assets as a
  percentage of Risk Based Capital
    18.52 %     21.54 %     32.10 %     26.13 %     30.19 %

The Company reported a $500,000 provision for loan loss expense in 2019Q1 compared to $465,000 in 2018Q4 and $500,000 in 2018Q1. Allowance for loan loss levels decreased to 0.80% of total loans at 2019Q1 compared to 0.81% at 2018Q4. The allowance as a percentage of non-acquired loans decreased three basis points to 0.86% at 2019Q1 from 0.89% at 2018Q4.

Net charge-offs for 2019Q1 were $630,000 compared to net charge-offs of $228,000 for 2018Q4 and $544,000 for 2018Q1. 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 improvements in classified assets and delinquency were offset by increases in other qualitative factors, such as increased portfolio growth and concentrations. 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 $1.7 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; or any other acquisition that we undertake in the future; plans and cost savings 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 the County First acquisition, or any other acquisition that we undertake in the future; may not be realized within the expected time frames; changes in The Community Financial Corporation or Community Bank of the Chesapeake’s strategy, costs or difficulties related to integration matters might be greater than expected; availability of and costs associated with obtaining adequate and timely sources of liquidity; the ability to maintain credit quality; 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 impact of government shutdowns or sequestration; 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, 2018, 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, 2019. 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, 2018.

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

...
 
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 )     2019       2018       2018       2018       2018    
Interest and Dividend Income                      
Loans, including fees   $ 16,129     $ 15,461     $ 15,085     $ 14,483     $ 14,726    
Interest and dividends on securities     1,623       1,536       1,311       1,211       1,095    
Interest on deposits with banks     45       45       88       60       72    
Total Interest and Dividend Income     17,797       17,042       16,484       15,754       15,893    
                       
Interest Expense                      
Deposits     3,768       3,486       2,835       2,405       1,956    
Short-term borrowings     334       125       142       217       283    
Long-term debt     658       606       746       721       764    
Total Interest Expense     4,760       4,217       3,723       3,343       3,003    
                       
Net Interest Income (NII)     13,037       12,825       12,761       12,411       12,890    
Provision for loan losses     500       465       40       400       500    
                       
NII After Provision For Loan Losses      12,537       12,360       12,721       12,011       12,390    
                       
Noninterest Income                      
Loan appraisal, credit, and misc. charges     58       42       81       7       53    
Gain on sale of asset     -       -       -       1       -    
Unrealized gains (losses) on equity securities     56       5       (8 )     (78 )     -    
Income from bank owned life insurance     217       225       227       224       226    
Service charges     730       794       770       747       752    
Total Noninterest Income     1,061       1,066       1,070       901       1,031    
                       
Noninterest Expense                      
Salary and employee benefits     4,803       4,633       4,739       5,129       5,047    
Occupancy expense     806       867       744       739       766    
Advertising     197       167       165       180       159    
Data processing expense     720       786       769       782       683    
Professional fees     418       293       442       426       352    
Merger and acquisition costs     -       5       11       741       2,868    
Depreciation of premises and equipment     189       202       207       202       199    
Telephone communications     52       47       62       69       99    
Office supplies     37       37       31       41       40    
FDIC Insurance     175       158       185       113       198    
OREO valuation allowance and expenses     56       141       165       237       114    
Core deposit intangible amortization     181