The Community Financial Corporation Announces Record Results of 1.18% Return on Average Assets for Fourth Quarter 2020

Fourth Quarter and Full Year 2020 Highlights
Net Income: Net income totaled $6.1 million for the quarter ended December 31, 2020, or $1.04 per diluted common share, a 42% increase per share compared to net income of $4.1 million or $0.73 per diluted common share for the quarter ended December 31, 2019.Overall Profitability: The Company’s return on average assets (“ROAA”) and return on average common equity (“ROACE”) were 1.18% and 12.51% for the three months ended December 31, 2020 compared to 0.91% and 9.58% for the three months ended December 31, 2019. The Company’s ROAA and ROACE were 0.81% and 8.46% for the twelve months ended December 31, 2020 compared to 0.88% and 9.32% for the twelve months ended December 31, 2019.Core Profitability: Pre-tax, pre-provision (“PTPP”) ROAA and PTPP ROACE increased to 1.71% and 18.08% for the quarter ended December 31, 2020 compared to 1.43% and 15.14% for the quarter ended December 31, 2019. PTPP ROAA and ROACE were 1.58% and 16.43% for the year ended December 31, 2020 compared to 1.32% and 14.07% for the same period in 2019.Loan Deferrals: At December 31, 2020, COVID-19 deferred loans decreased to $35.4 million, 1.75% of assets, or 2.35% of gross loans, excluding U.S. Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”) loans.Provision: The Company’s provision for loan losses (“PLL”) decreased to $0.6 million during the quarter ended December 31, 2020 compared to $2.5 million in the previous quarter. Economic uncertainty from the COVID-19 pandemic resulted in the Company increasing the provision to $10.7 million in 2020 from $2.1 million in 2019.Capital Infusion: $20.0 million of 4.75% subordinated debt was issued on October 14, 2020.Debt Retirement: The Company used excess liquidity to decrease debt $100.9 million in the fourth quarter of 2020, paying off $85.9 million of the Federal Reserve Paycheck Protection Program Liquidity Facility (“PPPLF”) and higher cost Federal Home Loan Bank (“FHLB”) advances of $15.0 million.WALDORF, Md., Feb. 05, 2021 (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 fourth quarter and year ended December 31, 2020. Net income for the three months ended December 31, 2020 of $6.1 million, or $1.04 per diluted common share compared with net income of $3.8 million, or $0.64 per diluted common share for the third quarter of 2020, and net income of $4.1 million, or $0.73 per diluted common share for the quarter ended December 31, 2019. The Company reported net income for the year ended December 31, 2020 of $16.1 million, or $2.74 per diluted common share compared to a net income of $15.3 million, or $2.75 per diluted common share for the year ended December 31, 2019. As a result of the COVID-19 pandemic, year to date 2020 earnings were impacted by an increased PLL of $10.7 million compared to $2.1 million for the year ended December 31, 2019.“The 2020 COVID pandemic presented unprecedented challenges, and I could not be prouder of our team’s response. We helped our community and customers navigate economic uncertainty by originating Paycheck Protection Program loans and providing payment deferrals on our own portfolio loans. At the same time, we increased core profitability by maintaining a stable net interest margin, improving our funding composition, adding non-interest income and controlling expenses. To fortify our balance sheet in light of COVID-19 pandemic credit concerns we increased our allowance for loans losses, resolved multiple OREO assets and strengthened regulatory capital by issuing subordinated debt. We believe the Bank is well-positioned to address potential future charge-offs related to the COVID-19 pandemic. We are optimistic that the Company’s 2020 core profitability will result in increased overall profitability in 2021,” stated William J. Pasenelli, President and Chief Executive Officer. “Due to the Company’s strong balance sheet and increased profitability we intend to increase common stock repurchases in 2021 and increase our quarterly per share dividend 20% to $0.15 for first quarter dividends paid in the second quarter of 2021.”“At December 31, 2020, COVID-19 deferred loans decreased to $35.4 million, 2.35% of portfolio loans or 1.75% of assets. We are encouraged that deferred loans at quarter end were in the lower range of our estimated 2% to 4% reported last quarter. During the fourth quarter, deferral customers returned to normal payments as scheduled with very few exceptions. Additional deferrals granted during the fourth quarter were to customers in industries that continue to require support to weather the pandemic. The overall improvement has been driven by the resilience of our local economy which is tied to the federal government. We will continue to support our communities with the next round of US SBA PPP relief passed by Congress in December 2020,” stated James M. Burke, TCFC Executive Vice President and Bank President. “The addition of new customers throughout the pandemic contributed to our success in increasing lower cost transaction deposits in every year the last five years. Non-interest bearing accounts and transaction accounts increased to 20.7% and 79.7% of deposits at December 31, 2020 from 16.0% and 73.9% at December 31, 2019. We will continue to evaluate and, where applicable, rationalize our branch structure and physical footprint while still providing an optimal customer experience.”On October 20, 2020, the Board approved the 2020 stock repurchase plan which authorized the Company to repurchase up to 300,000 shares of the Company’s outstanding common stock using up to $7.0 million of the proceeds the Company raised in its recently completed $20.0 million subordinated debt offering. At that time, the Company expected to limit the capital allocated to repurchases during the fourth quarter of 2020 and the first quarter of 2021 to $0.3 million per quarter, for an aggregate of $0.6 million, while we monitored the impact of the pandemic on asset quality. Based on management’s assessment of the adequacy of capital and loan loss reserves at December 31, 2020, the Board has approved up to $1.0 million of repurchases in the first quarter of 2021. If conditions continue to merit repurchases the Company intends to repurchase between $1.0 million and $2.0 million per quarter during 2021.Results of OperationsNet interest income increased as funding costs decreased at a faster rate than interest-earning asset repricing. The Company recorded $10.1 million in the provision for loan losses for the nine months ended September 30, 2020 due to the economic uncertainty of the COVID-19 pandemic. The provision for loan losses moderated in the fourth quarter of 2020 and management believes the ALLL at December 31, 2020 is adequate. Noninterest income increased primarily due to increased gains on the sale of investment securities partially offset by lower interest rate protection referral fee income. Noninterest expense was comparable for the periods as lower compensation and benefits and other expenses were offset by increased OREO valuation allowances and FDIC insurance.Net interest income increased in 2020 as funding costs decreased at a faster rate than interest-earning asset repricing. The economic uncertainty of the COVID-19 pandemic increased the provision for loan losses and noninterest expense. The increase in noninterest expense was primarily attributable to OREO valuation adjustments in connection with sales. Noninterest income increased primarily due to gains on the sale of investment securities and interest rate protection referral fee income. The decrease in income tax expense was due to a change in the Company’s state tax apportionment approach that was implemented in the first quarter of 2020 as well as lower pre-tax income.Net Interest IncomeNet interest income increased $2.3 million or 16.5% for the three months ended December 31, 2020 compared to the three months ended December 31, 2019. Net interest margin of 3.40% for the three months ended December 31, 2020 increased 11 basis points from 3.29% for the comparable period. The increase in net interest income resulted primarily from significant decreases in interest expense from lower funding costs. Interest income decreased from significantly lower asset yields partially offset by increased interest income from larger average balances and accelerated loan fee recognition following the forgiveness of PPP loans.Net interest income increased $7.4 million or 13.8% for the twelve months ended December 31, 2020 compared to the twelve months ended December 31, 2019. Net interest margin of 3.36% for the twelve months ended December 31, 2020 was five basis points higher than the 3.31% for the twelve months ended December 31, 2019. The increase in net interest margin from the twelve months of 2019 resulted primarily from the Company’s interest earning asset yields decreasing at a slower rate than overall funding costs. Interest earning asset yields decreased 56 basis points from 4.48% for the twelve months ended December 31, 2019 to 3.92% for the twelve months ended December 31, 2020. The Company’s cost of funds decreased 65 basis points from 1.22% for the twelve months ended December 31, 2019 to 0.57% for the twelve months ended December 31, 2020.The sharp decline in interest rates in 2020 not only reduced interest income on floating-rate commercial loans and liquid interest-earning assets, but it also reduced competitive pressures and depositor expectations concerning deposit interest rates. In 2020, due to a slightly liability-sensitive balance sheet, the Company increased its net interest margin in the first quarter. Margins were stable during the second and third quarters and slightly increased during the fourth quarter of 2020 after adjusting for PPP loan and funding activity. Net interest margin increased from 3.27% for the three months ended September 30, 2020 to 3.40% for the three months ended December 31, 2020.FHLB advances of $30.0 million were repaid early with a 2.2% average rate in the last six months of 2020. Prepayment fees totaled $0.6 million, increasing interest expense $0.1 million and $0.5 million in the three months ended September 30, 2020 and December 31, 2020, respectively.Some compression of our core net interest margin is probable in 2021 as interest-earning assets begin to reprice faster than interest-bearing liabilities. The Bank’s loan growth may slow due to overall economic conditions. Conversely, PPP loan forgiveness will positively impact margins and net interest income in the quarter(s) of forgiveness with the recognition of remaining net deferred fees.Noninterest IncomeNoninterest income increased $0.2 million or 7.1% for the three months ended December 31, 2020 compared to the three months ended December 31, 2019. The increase for the comparable periods was primarily due to gains on the sale of investment securities partially offset by decrease interest rate protection referral fee income. Noninterest income as a percentage of average assets was 0.46% and 0.49%, respectively, for the three months ended December 31, 2020 and 2019.Noninterest income increased $2.7 million or 46.0% for the twelve months ended December 31, 2020 compared to the twelve months ended December 31, 2019. The increase was primarily due to increased interest rate protection referral fee income of $1.5 million and increased gains on the sale of securities of $1.2 million. Noninterest income as a percentage of assets was 0.42% and 0.33%, respectively, for the twelve months ended December 31, 2020 and 2019. The COVID-19 crisis has impacted spending habits of customers and reduced growth in service fee income as well as curtailed expected commercial loan volume which impacts interest rate protection agreement referral fee opportunities.Noninterest ExpenseNoninterest expense for the three months ended December 31, 2020 was comparable to the three months ended December 31, 2019. Compensation and benefits decreased due to adjustments to incentive compensation accruals. These reductions were partially offset by increases in FDIC insurance and OREO. The increase in FDIC insurance for the fourth quarter of 2020 was due to the application of a $0.2 million FDIC insurance credit taken in the fourth quarter of 2019. Increased OREO expenses reflect management’s actions in 2020 to reduce non-performing assets. The Company’s projected quarterly expense run rate for the first quarter of 2021 remains between $9.2-$9.4 million.The Company’s efficiency ratio was 51.64% for the three months ended December 31, 2020 compared to 59.58% for the three months ended December 31, 2019. The Company’s net operating expense ratio was 1.37% for the three months ended December 31, 2020 compared to 1.62% for the three months ended December 31, 2019. The efficiency and net operating expense ratios have improved (decreased) as the Company has been able to generate more noninterest income while controlling expense growth.Noninterest expense increased $1.8 million or 4.9% for the twelve months ended December 31, 2020 compared to the twelve months ended December 31, 2019. The increase in noninterest expense for the comparable periods was primarily due to increased OREO expenses. In addition, noninterest expense increased for the comparable periods as increases in data processing, professional fees and FDIC insurance were offset by decreases in all other operating expenses including compensation and benefits, occupancy, advertising, depreciation and other expenses. Noninterest expense decreased $0.5 million or 1.3% for the comparable periods if OREO expenses were excluded. Data processing cost increases include the Bank’s continued investment in technology with the addition of the nCino Bank Operating System. The Company’s investments in technology have slowed the growth of expenses as the asset size of the Bank has increased. Year to date compensation and benefits for the twelve months ended decreased a total of $0.9 million primarily due to the allocation of $0.5 million of deferred costs for U.S. SBA PPP loans originated during the second and third quarters of 2020.The Company’s efficiency ratio was 54.81% for the twelve months ended December 31, 2020 compared to 61.10% for the twelve months ended December 31, 2019. The Company’s net operating expense ratio was 1.49% at December 31, 2020 compared to 1.75% at December 31, 2019. The efficiency and net operating expense ratios have improved (decreased) as the Company has been able to generate more noninterest income while controlling expense growth.Income Tax ExpenseFor the year ended December 31, 2020 the effective tax rate was 21.8%.The Company’s new state tax apportionment approach was implemented during the first quarter of 2020 and included the impact of amended income tax filings of the Company and Bank. Management evaluated the tax position and determined the change in tax position qualified as a change in estimate under FASB ASC Section 250. The following table shows a breakdown of income tax expense for the year ended December 31, 2020 split between the apportionment adjustment and a normalized 2020 income tax provision:Balance SheetAssetsTotal assets increased $228.9 million, or 12.7%, to $2.0 billion at December 31, 2020 compared to total assets of $1.8 billion at December 31, 2019, primarily due to increased net loans of $149.0 million with U.S. SBA PPP loans accounting for $108.0 million of the increase. In addition, investments increased $37.4 million, OREO decreased $4.7 million, cash increased $44.6 million and all other assets increased $2.6 million. The Company’s loan pipeline was approximately $134.0 million at December 31, 2020.During the fourth quarter of 2020, total net loans, which include portfolio loans and U.S. SBA PPP loans, decreased 3.2% annualized or $13.0 million from $1,607.1 million at September 30, 2020 to $1,594.1 million at December 31, 2020. Gross portfolio loans increased 2.1% annualized or $7.7 million from $1,496.5 million at September 30, 2020 to $1,504.3 million at December 31, 2020. Portfolio loans include all loan portfolios except the U.S. SBA PPP loan portfolio.Non-owner occupied commercial real estate as a percentage of risk-based capital at December 31, 2020 and December 31, 2019 were $695.8 million or 316% and $639.1 million or 320%, respectively. Construction loans as a percentage of risk-based capital at December 31, 2020 and December 31, 2019 were $139.2 million or 63% and $147.2 million or 74%, respectively. Regulatory loan concentrations decreased in the fourth quarter of 2020 from the investment of $10.0 million in the Bank from the issuance of subordinated debt of $20.0 million on October 14, 2020.FundingThe Bank uses retail deposits and wholesale funding. Retail deposits continue to be the most significant source of funds totaling $1,737.6 million or 98.0% of funding at December 31, 2020 compared to $1,510.8 million or 97.0% of funding at December 31, 2019. Wholesale funding, which consisted of FHLB advances and brokered deposits was $35.3 million or 2.0% of funding at December 31, 2020 compared to $46.4 million or 3.0% of funding at December 31, 2019.Total deposits increased $233.8 million or 15.5% at December 31, 2020 compared to December 31, 2019. The increase comprised a $274.1 million increase to transaction deposits offsetting a $40.3 million decrease to time deposits. Non-interest-bearing demand deposits increased $120.9 million or 50.1% at December 31, 2020, representing 20.74% of deposits, compared to 15.95% of deposits at December 31, 2019. The Bank increased on-balance sheet liquidity as deposit balances increased compared to the prior year. Customer deposit balances increased due to new customer acquisitions as well as lower levels of consumer and business spending related to the COVID-19 pandemic.Stockholders’ Equity and Regulatory CapitalDuring the twelve months ended December 31, 2020, total stockholders’ equity increased $16.5 million due to net income of $16.1 million, an increase in accumulated other comprehensive income of $3.0 million due to increased unrealized gains in the investment portfolio and net stock related activities in connection with stock-based compensation and ESOP activity of $0.5 million. These increases to stockholders’ equity were partially offset by common dividends paid of $2.8 million and stock repurchases of $0.3 million. The Company’s ratio of tangible common equity (“TCE”) to tangible assets decreased to 9.22% at December 31, 2020 from 9.44% at December 31, 2019 (see Non-GAAP reconciliation schedules). The decrease in the TCE ratio was due primarily to significant increases in cash and loans from COVID-19 government stimulus.In April 2020, banking regulators issued an interim final rule which excluded U.S. SBA PPP loans from the calculation of risk-based capital ratios by assigning a zero percent risk weight. The Company remains well capitalized at December 31, 2020 with a Tier 1 capital to average assets (“leverage ratio”) of 9.56% at December 31, 2020 compared to 10.08% at December 31, 2019.On December 31, 2019, the Company issued a total of 312,747 shares of its common stock, par value $0.01 in a private placement offering. The Company received net proceeds of $10.6 million after deal expenses. On February 15, 2020, the Company used the proceeds and a cash dividend from the Bank to redeem the Company’s outstanding $23.0 million of 6.25% fixed-to-floating rate subordinated notes.On October 14, 2020, the Company issued $20.0 million in aggregate principal amount 4.75% Fixed to Floating Rate Subordinated Notes due 2030 (the “Offering”), which is treated as Tier 2 Capital at the Company. The Company contributed $10.0 million of net proceeds from the Offering to the Bank as Tier 1 Capital on October 15, 2020 and may use the remainder of the Offering net proceeds for general corporate purposes, to support bank regulatory capital ratios and for potential common stock share repurchases.Asset QualityCOVID-19 Loan ProgramsWhile the outbreak of COVID-19 adversely impacted a range of industries in the Company’s footprint, we have taken steps to protect the health and well-being of our employees and customers and to assist customers who have been impacted by the COVID-19 pandemic. The Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law on March 27, 2020. There have been additional clarifications to regulation and legislation since the original law was passed, including the recent legislation that authorized another round of federal government funding for US SBA PPP loans in December 2020.During 2020 the Company originated 971 US SBA PPP loans with original balances of $140.9 million. As of December 31, 2020, US SBA PPP there were 867 loans with outstanding balances of $110.3 million. We are presently assisting our customers with the additional round of funding which began in January 2021. No credit issues are anticipated with US SBA PPP loans as they are guaranteed by the SBA and the Bank’s allowance for loan loss does not include an allowance for US SBA PPP loans.Beginning in April of 2020, the Company added COVID-19 payment deferral programs for impacted customers. The Company deferred either the full loan payment or the principal component of the loan payment between 90 and 180 days with most deferrals set to a six month period. As of December 31, 2020, $35.4 million or 2.4% of gross portfolio loans had deferral agreements, down $216.1 million from $251.5 million or 16.8% of total gross portfolio loans as of September 30, 2020. This decline was in line with management’s estimate of 2% to 4% of loans made at the end of the third quarter. All COVID-19 deferred loans were current prior to the crisis and will not be considered delinquent loans or troubled debt restructures (“TDRs”) upon completion of the modification agreements due to provisions in the CARES Act and regulations that permit U.S. financial institutions to temporarily suspend U.S. GAAP requirements to treat such loan modifications as TDRs.At December 31, 2020, deferrals were reflected in the Company’s asset quality measures for credit classifications (i.e., pass, special mention, substandard, doubtful) and accrual status (i.e., accrual vs. non-accrual). Below are schedules that provide information on COVID-19 deferred loans as of December 31, 2020:

Allowance for loan losses (“ALLL”) and provision for loan losses (“PLL”)Since December 31, 2019, the Company’s general allowance increased reflecting economic uncertainty from the COVID-19 pandemic. ALLL levels increased to 1.29% of portfolio loans at December 31, 2020 compared to 0.75% at December 31, 2019. At and for the year ended December 31, 2020, the Company’s ALLL increased $8.5 million or 77.5% to $19.4 million at December 31, 2020 from $10.9 million at December 31, 2019.The Company recorded a $0.6 million and $10.7 million PLL for the three and twelve months ended December 31, 2020 compared to $0.8 million and $2.1 million for the three and twelve months ended December 31, 2019. During 2020, net charge-offs also increased from the prior year as we resolved several relationships that were substandard relationships prior to the pandemic. The Company’s allowance methodology considers quantitative historical loss factors and qualitative factors to determine the estimated level of incurred losses in the Company’s loan portfolios. The increased provision was primarily due to the economic effects of the COVID-19 pandemic and considered the potential impact of our loan payment deferral program. The current year growth in the commercial loan portfolios also contributed to provision expense.Management believes that loans that were part of the COVID-19 deferral program in 2020 are more likely to default in the future and that the identification and resolution of problem credits could be delayed. In our evaluation of current and previously deferred loans, we considered the length of the deferral period, the type and amount of collateral and customer industries. Consistent with regulatory guidance, if new information during the deferral period indicates that there is evidence of default, the Bank may change the classification rating (e.g., change from passing credit to substandard) and accrual status (e.g., change from accrual to non-accrual status) as deemed appropriate. As of December 31, 2020, there were $3.4 million of COVID-19 deferred loans deemed to be non-accrual and substandard based on reviews.Management believes that the allowance is adequate at December 31, 2020. The ALLL as a percent of total loans may increase or decrease in future periods based on the success or failure of economic recovery coming out of COVID-19 pandemic.Non-Performing AssetsClassified assets decreased $12.3 million from $34.6 million at December 31, 2019 to $22.4 million at December 31, 2020. Management considers classified assets to be an important measure of asset quality. The Company’s risk rating process for classified loans is an important input into the Company’s allowance methodology. Risk ratings are expected to be an important indicator in assessing ongoing credit risks of COVID-19 deferred loans. During the year ended December 31, 2020, the Company offered COVID-19 deferrals to one substandard relationship that was current as of December 31, 2019. As of December 31, 2020 this relationship consisted of four loans totaling $3.4 million that were also considered non-accrual loans.Non-accrual loans and OREO to total gross portfolio loans and OREO decreased 33 basis points from 1.75% at December 31, 2019 to 1.42% at December 31, 2020. Non-accrual loans, OREO and TDRs to total assets decreased 38 basis points from 1.46% at December 31, 2019 to 1.08% at December 31, 2020. Non-accrual loans increased $0.3 million from $17.9 million at December 31, 2019 to $18.2 million at December 31, 2020. Non-accrual loans of $6.3 million (34%) were current with all payments of principal and interest with specific reserves of $0.1 million at December 31, 2020. Delinquent non-accrual loans were $11.9 million (66%) with specific reserves of $1.3 million at December 31, 2020.The OREO balance decreased $4.7 million from $7.8 million at December 31, 2019 to $3.1 million at December 31, 2020.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 $2.0 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,” “probable” 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 any acquisition we have undertaking or 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: risks, uncertainties and other factors relating to the COVID-19 pandemic (including the length of time that the pandemic continues, the ability of states and local governments to successfully implement the lifting of restrictions on movement and the potential imposition of further restrictions on movement and travel in the future, the effect of the pandemic on the general economy and on the businesses of our borrowers and their ability to make payments on their obligations; the remedial actions and stimulus measures adopted by federal, state and local governments, and the inability of employees to work due to illness, quarantine, or government mandates); the synergies and other expected financial benefits from any acquisition that we have undertaken or may 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 which 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 pending or threatened litigation, or of matters before regulatory agencies, whether currently existing or commencing in the future; 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, 2019, 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 December 31, 2020. 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, 2019.CONTACTS:
William J. Pasenelli, Chief Executive Officer
Todd L. Capitani, Chief Financial Officer
888.745.2265
SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED)
CONDENSED CONSOLIDATED INCOME STATEMENTSUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED) – Continued
CONDENSED CONSOLIDATED BALANCE SHEETSSUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED) – Continued
SELECTED FINANCIAL INFORMATION AND RATIOS** Non-GAAP financial measure. See reconciliation of GAAP and NON-GAAP measures.
____________________________________SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED) – Continued
SELECTED FINANCIAL INFORMATION AND RATIOS** Non-GAAP financial measure. See reconciliation of GAAP and NON-GAAP measures.
____________________________________SUPPLEMENTAL YEAR TO DATE FINANCIAL DATA (UNAUDITED)
CONDENSED CONSOLIDATED INCOME STATEMENTSUPPLEMENTAL YEAR TO DATE FINANCIAL DATA (UNAUDITED)____________________________________
** Non-GAAP financial measure. See reconciliation of GAAP and NON-GAAP measures.RECONCILIATION OF NON-GAAP MEASURES (UNAUDITED)Reconciliation of US GAAP total assets, common equity, common equity to assets and book value to Non-GAAP tangible assets, tangible common equity, tangible common equity to tangible assets and tangible book value.This press release, including the accompanying financial statement tables, contains financial information determined by methods other than in accordance with generally accepted accounting principles, or GAAP. This financial information includes certain performance measures, which exclude intangible assets. These non-GAAP measures are included because the Company believes they may provide useful supplemental information for evaluating the underlying performance trends of the Company.RECONCILIATION OF NON-GAAP MEASURES (UNAUDITED)Pre-Tax Pre-Provision (“PTPP”) Income, PTPP Return on Average Assets (“ROAA”) and PTPP Return on Average Common Equity (“ROACE”)We believe that pre-tax pre-provision income, which reflects our profitability before income taxes and loan loss provisions, allows investors to better assess our operating income and expenses in relation to our core operating revenue by removing the volatility that is associated with credit provisions and different state income tax rates for comparable institutions. We also believe that during a crisis such as the COVID-19 pandemic, this information is useful as the impact of the pandemic on the loan loss provisions of various institutions will likely vary based on the geography of the communities served by a particular institution.AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME (UNAUDITED)(1) Loan average balance includes non-accrual loans. There are no tax equivalency adjustments. There was $96,000, $240,000 and $111,000 of accretion interest for the three months ended December 31, 2020 and 2019, and September 30, 2020, respectively.** Transaction deposits exclude time deposits.AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME (UNAUDITED)(1) Loan average balance includes non-accrual loans. There are no tax equivalency adjustments. There was $0.6 million and $0.9 million of accretion interest years ended December 31, 2020 and 2019, respectively.** Transaction deposits exclude time deposits.SUMMARY OF LOAN PORTFOLIO (UNAUDITED)
(dollars in thousands)END OF PERIOD CONTRACTUAL RATES (UNAUDITED)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:ALLOWANCE FOR LOAN LOSSES (UNAUDITED)(1)   Portfolio loans include all loan portfolios except the U.S. SBA PPP loan portfolio. Asset quality ratios for loans exclude U.S. SBA PPP loans.
CLASSIFIED AND SPECIAL MENTION ASSETS (UNAUDITED)The following is a breakdown of the Company’s classified and special mention assets at December 31, 2020, 2019, 2018, 2017 and 2016, respectively:SUMMARY OF DEPOSITS (UNAUDITED)