WALDORF, Md., April 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 first quarter of 2017. Net income was $2.3 million for the three months ended March 31, 2017, an increase of $734,000 or 45.6%, compared to $1.6 million for the three months ended March 31, 2016. Earnings per common share (diluted) at $0.51 increased $0.16 from $0.35 per common share (diluted) for the three months ended March 31, 2016.  The Company’s returns on average assets and common stockholders’ equity for the first quarter of 2017 were 0.70% and 8.78%, respectively, compared to 0.56% and 6.37%, respectively, for the first quarter of 2016.    

The Company continued to increase profits recording its sixth consecutive quarter of earnings growth. Net income of $2.3 million for the three months ended March 31, 2017 increased $320,000 compared to $2.0 million of net income for the fourth quarter of 2016. Earnings per common share (diluted) at $0.51 increased $0.07 from $0.44 per common share (diluted) for the three months ended December 31, 2016.  The Company’s returns on average assets and common stockholders’ equity for the first quarter of 2017 were 0.70% and 8.78%, respectively, compared to 0.62% and 7.68%, respectively, for the fourth quarter of 2016.  The increase in net income from the fourth quarter was the result of increased net interest income of $201,000, a lower provision for loan losses of $290,000 partially offset by small variances in noninterest expense and noninterest income and higher income tax expense due to higher pretax earnings.     

William J. Pasenelli, Chief Executive Officer and Vice-Chairman of the Board, stated, “Our 2016 loan growth, expected loan growth for 2017 and continued focus on controlling expenses should position the Company to further increase operating leverage during 2017. The Company’s efficiency ratio¹ improved seven percentage points to 64% for the first quarter of 2017 from 71% for the three months ended March 31, 2016. In addition, the net operating expense ratio²  has been below 2.0% for two consecutive quarters and improved to 1.94% for the first quarter of 2017.”

James M. Burke, Chief Risk Officer of the Company and President of the Bank stated, “I am pleased that our asset quality has continued to improve. Classified assets and non-performing assets are trending down and have improved in each of the last five quarters.  Non-accrual loans and OREO have decreased $6.8 million and as a percentage of assets to 1.07% of assets at March 31, 2017 compared to 1.82% at March 31, 2016. In addition, our delinquency has decreased to 0.66% of total loans from 1.13% for the same time period in 2016.”  

Net interest margin for the three months ended March 31, 2017 declined slightly compared to the fourth quarter of 2016, decreasing five basis points from 3.45% to 3.40%, respectively. The decrease was expected and attributable to slight yield compression in loans and an increase in the use of short-term FHLB wholesale funding in the first quarter of 2017.  The majority of the loan yield compression was due to an increase in average residential first mortgages that were purchased during the fourth quarter of 2016. Commercial real estate yields remained stable at 4.42% during fourth quarter of 2016 and the first quarter of 2017.  Based on the Company’s intentions to slow the growth of the residential first mortgage portfolio during 2017 in favor of more commercial loan growth, overall loan yields could be positively impacted during 2017.

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

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

Net Interest Income

Net interest income increased 13.6% or $1.3 million to $10.7 million for the three months ended March 31, 2017 compared to $9.4 million for the three months ended March 31, 2016. Net interest margin at 3.40% for the three months ended March 31, 2017 decreased 10 basis points from 3.50% for the three months ended March 31, 2016. Average interest-earning assets were $1,254.5 million for the first quarter of 2017, an increase of $180.7 million or 16.8%, compared to $1,073.8 million for the same quarter of 2016.

Net interest margin declined during the first quarter of 2017, primarily due to reduced yields on loans. Yields on the loan portfolio decreased from 4.59% for the three months ended March 31, 2016 to 4.42% for three months ended March 31, 2017. Yields were reduced compared to the prior year due to the Bank’s increased investment in residential mortgages and the low intermediate term interest rates that were depressed for most of 2016, with the ten year U.S. Treasury rate as low as 1.37% (July 8, 2016).

A small increase in the cost of funds slightly impacted net interest margin for the comparable periods. The cost of funds increased one basis point to 0.74% for the three months ended March 31, 2017 compared to 0.73% for the three months ended March 31, 2016. The Company continued to make progress in controlling 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 three months ended March 31, 2017 increased $79.2 million, or 15.1%, to $605.7 million compared to $526.5 million for the comparable period in 2016. Average transaction accounts as a percentage of total deposits increased from 57.0% for the three months ended March 31, 2016 to 57.9% for the three months ended March 31, 2017.

Noninterest Income and Noninterest Expense

Noninterest income was flat at $875,000 for the three months ended March 31, 2017 compared to $850,000 for the three months ended March 31, 2016.

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 will continue during 2017.

For the three months ended March 31, 2017, noninterest expense increased 1.9%, or $139,000, to $7.4 million from $7.2 million for the comparable period in 2016. The Company’s efficiency ratio for the three months ended March 31, 2017 and 2016 was 63.89% and 70.68%, respectively. The Company’s net operating expense ratio as a percentage of average assets for the three months ended March 31, 2017 and 2016 was 1.94% and 2.21%, 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:

Balance Sheet and Asset Quality

Balance Sheet

Total assets at March 31, 2017 were $1.36 billion, an increase of $21.8 million or 6.4% 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 $24.9 million, or 9.2% annualized growth, from $1,079.5 million at December 31, 2016 to $1,104.4 million at March 31, 2017, principally due to increases in loans secured by commercial real estate and residential first mortgages.

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

Deposits increased by 5.0% annualized, or $13.0 million, to $1,051.8 million at March 31, 2017 compared to $1,038.8 million at December 31, 2016.  The Company uses both traditional and reciprocal brokered deposits. Traditional brokered deposits at March 31, 2017 and December 31, 2016 were $130.3 million and $131.0 million, respectively. Reciprocal brokered deposits are used to maximize FDIC insurance available to our customers. Reciprocal brokered deposits at March 31, 2017 and December 31, 2016 were $67.5 million and $70.7 million, respectively. The following is a breakdown of the Company’s deposit portfolio at March 31, 2017 and December 31, 2016:

Long-term debt and short-term borrowings increased $8.5 million from $144.6 million at December 31, 2016 to $153.1 million at March 31, 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 three months ended March 31, 2017, stockholders’ equity increased $2.1 million to $106.6 million. The increase in stockholders’ equity was due to net income of $2.3 million, a current year decrease in accumulated other comprehensive loss of $127,000 and net stock related activities related to stock-based compensation of $121,000. These increases to capital were partially offset by quarterly common dividends paid of $450,000. Common stockholders' equity of $106.6 million at March 31, 2017 resulted in a book value of $22.96 per common share compared to $22.54 at December 31, 2016. The Company remains well-capitalized at March 31, 2017 with a Tier 1 capital to average assets ratio of 8.91%.

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 classified customers to obtain financing with other lenders or enforcing its contractual rights. Management believes this strategy is in the best long-term interest of the Company. As a result 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 1.07% at March 31, 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 1.83% at March 31, 2017.

Management considers classified assets to be an important measure of asset quality. Classified assets have been trending downward the last several years. The following is a breakdown of the Company’s classified and special mention assets at March 31, 2017 and December 31, 2016, 2015, 2014 and 2013, respectively:

The allowance for loan losses was 0.91% of gross loans at March 31, 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 classified assets and 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 March 31, 2017 and December 31, 2016, respectively:

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 months ended March 31, 2017 and 2016, respectively, and a five-year trend:

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 $1.3 billion.  Through its 12 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 11 branch offices in Waldorf, Bryans Road, Dunkirk, Leonardtown, La Plata, Charlotte Hall, Prince Frederick, Lusby and California, Maryland; and Central Park 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, 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. 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 Securities and Exchange Commission.

Data is unaudited as of March 31, 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