WALDORF, MD -- (Marketwired - July 20, 2016) - 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 second quarter and first half of 2016. Consolidated net income available to common shareholders was $1.7 million or $0.38 per common share (diluted) for the three months ended June 30, 2016, an increase of $130,000, or $0.03 per common share (diluted), compared to the three months ended March 31, 2016. The Company's income before income taxes increased $240,000 to $2.8 million for the three months ended June 30, 2016 from $2.6 million for the three months ended March 31, 2016.
Consolidated net income available to common shareholders was $1.7 million for the three months ended June 30, 2016, an increase of $27,000 compared to the three months ended June 30, 2015. Earnings per common share (diluted) at $0.38 increased $0.01 from $0.37 per common share (diluted) for the three months ended June 30, 2015. Consolidated net income available to common shareholders of $3.3 million or $0.72 per common share (diluted) for the six months ended June 30, 2016 decreased $163,000 or $0.03 per common share (diluted) compared to the six months ended June 30, 2015. Consolidated net income reflects the stability of core earnings while absorbing the impact of the 2015 subordinated debt offering that replaced SBLF preferred stock.
"Our current year's initiative to reduce costs picked up momentum during the second quarter of 2016. Our efficiency ratio improved to 68.33% during the second quarter from 70.68% for the previous quarter. We controlled the rate of expense growth at 0.7% compared to the prior quarter. The significant increase in loan volume resulted net interest income growing faster than operating expenses," stated William J. Pasenelli, President and Chief Executive Officer. "In our first two quarters, loan growth was very strong. Average loans outstanding grew by $77.9 million in the first six months and end of period gross loans have increased $86.2 million, or 18.8% on an annualized basis, from $918.9 million at December 31, 2015 to $1.05 billion at June 30, 2016. We have a strong pipeline heading into the second half of the year and continued loan growth, paired with our expense reduction initiative, should increase our operating leverage during the second half of the year."
Operations - Three Months Ended June 30, 2016 compared to Three Months Ended March 31, 2016
Consolidated net income available to common shareholders was $1.7 million for the three months ended June 30, 2016, an increase of $130,000 compared to the three months ended March 31, 2016. This is attributable to increased net interest income of $502,000, partially offset by increases to the provision for loan losses of $137,000, noninterest expense of $52,000, income tax expense of $110,000 and a $73,000 decrease in noninterest income.
Net interest income increased $502,000 to $9.9 million for the three months ended June 30, 2016 compared to $9.4 million for the three months ended March 31, 2016. Net interest margin at 3.52% for the three months ended June 30, 2016 increased two basis points from 3.50% for the three months ended March 31, 2016. Net interest margin in the second quarter of 2016 was positively impacted by approximately five basis points from loans returning to performing status from nonaccrual and other miscellaneous activities, such as loan payoffs. The Company expects a slight net interest margin compression during the second half of 2016 based on its pipeline and plans to add additional residential mortgages and investments.
During the three months ended June 30, 2016, the Company's cost of funds increased one basis point to 0.74% compared to 0.73% for the first quarter of 2016. Average transaction deposits, which include savings, money market, interest-bearing demand and non-interest bearing demand accounts, for the three months ended June 30, 2016 increased $29.6 million, or 5.6%, to $556.1 million compared to $526.5 million for the three months ended March 31, 2016. Average non-interest-bearing demand deposits increased $9.2 million, or 6.9%, to $142.2 million compared to the prior quarter.
Medium-term market interest rates have fallen since the fourth quarter of 2015, with the ten year U.S. Treasury rate as of July 15, 2016 ending at 1.60%. This is down from 2.27% at December 31, 2015. The five year U.S. Treasury rate as of July 15, 2016 was 1.15%. This is down from 1.76% at December 31, 2015. These lower medium-term interest rates are due to economic weaknesses in the world economy. Assuming treasury rates remain depressed in the 5 to 10 year range, there will be more negative pressure on the re-pricing of the loan portfolio and the pricing of new loans. The downward trend in treasury rates had a positive impact on local deposit pricing through the second quarter of 2016.
Interest and dividend income increased by $616,000 to $11.9 million for the three months ended June 30, 2016 compared to $11.3 million for the three months ended March 31, 2016, primarily due to increased income from the growth in the average balance of loans. Additionally, interest income increased due to larger average investment balances and higher yields on loans as the result of loans returning to performing status from nonaccrual and other miscellaneous activities, such as loan payoffs. These increases to interest income were partially offset by a decrease in yields on investments. Interest income on loans increased $551,000 due to growth of $47.6 million in the average balance of loans from $919.1 million for the three months ended March 31, 2016 to $966.7 million for the three months ended June 30, 2016. Average loan yields increased three basis points from 4.59% for the three months ended March 31, 2016 to 4.62% for the three months ended June 30, 2016, which resulted in an increase in interest income of $74,000. Interest and dividend income on investments decreased a net of $9,000 during the second quarter of 2016 compared to the prior quarter. A reduction in average yields from 1.98% to 1.93% resulted in a decrease of $19,000 partially offset by a $10,000 increase in interest and dividend investment income due to a $2.1 million increase in average investment balances.
Interest expense increased $114,000 to $2.0 million for the three months ended June 30, 2016 compared to the prior quarter due to an increase in the average balances of interest-bearing liabilities and a small increase in the cost of interest-bearing liabilities. During the three months ended June 30, 2016, interest expense increased $52,000 due to larger average balances of interest-bearing transaction deposit accounts and time deposits which increased $37.9 million from $789.9 million for the three months ended March 31, 2016 to $827.8 million for the three months ended June 30, 2016. Interest expense increased $39,000 due to $5.9 million in higher average long-term and short-term debt balances than the prior quarter. Additionally, interest expense increased $36,000 as rates on interest-bearing deposit accounts increased modestly from 0.55% to 0.57%. The cost of total deposits at 0.49% for the three months ended June 30, 2016 increased 1 basis point from 0.48% for the three months ended March 31, 2016 as an increase in average noninterest bearing deposits partially offset the increase in the cost of average interest bearing deposits. These increases to interest expense were partially offset by a reduction in interest expense of $13,000 due a reduction in the average rate paid on debt. The average rate paid on debt, which includes long-term debt, trust preferred junior subordinated debentures ("TRUPS"), subordinated notes, and short-term borrowings, declined from 2.71% for the three months ended March 31, 2016 to 2.66% for the three months ended June 30, 2016.
The provision for loan losses increased $137,000 to $564,000 for the three months ended June 30, 2016 compared to $427,000 for the three months ended March 31, 2016. Net charge-offs for the current quarter decreased $329,000 from $377,000 for the three months ended March 31, 2016 to $48,000 for the three months ended June 30, 2016. 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 increased loan growth. Overall, these changes resulted in a higher provision for loan losses for the comparable periods. The specific allowance is based on management's estimate of realizable value for particular loans and has decreased as specific credits have been resolved through a return to performance, charge-offs and additions to other real estate owned.
Noninterest income decreased by $73,000 to $777,000 for the three months ended June 30, 2016 compared to $850,000 for the three months ended March 31, 2016. During the second quarter of 2016, the Company recognized losses of $448,000 on the disposition of $2.8 million in other real estate owned ("OREO"). The OREO losses were partially offset by increases of $294,000 in service charges and $81,000 from miscellaneous and other income sources compared to prior quarter.
Noninterest expense of $7.3 million for the second quarter of 2016 increased $52,000, or 0.7%, from the first quarter of 2016. The current quarter increase was primarily the result of increases in operating expenses of $203,000 compared to the prior quarter, of which approximately $100,000 related to the timing of planned advertising campaigns. The Company's compensation and benefits increased slightly in the second quarter of 2016 compared to the prior quarter due to higher self-insured health insurance claims. During the first quarter of 2016, the Company identified annualized savings of $1.2 million, primarily from reductions in staffing due to employee attrition and retirement. These annualized savings will be realized over the next year. The Company is focused on reducing expenses by streamlining internal processes and thereby FTEs as well as reviewing vendor relationships. The Company is cautiously optimistic that these cost cutting efforts and its continued asset growth will create operating leverage and increase both its return on average assets and return on equity over the next year. The Company's efficiency ratio and noninterest expense as a percentage of average assets for the three months ended June 30, 2016 compared to the three months ended March 31, 2016 were 68.33% and 2.41%, respectively, and 70.68% and 2.51%, respectively. The following is a summary breakdown of noninterest expense compared to the prior quarter:
Three Months Ended June 30, March 31, (dollars in thousands) 2016 2016 $ Change % Change ------------------------------ ---------- ---------- ---------- --------- Compensation and Benefits $ 4,197 $ 4,152 $ 45 1.1% OREO Valuation Allowance and Expenses 105 301 (196) (65.1%) Operating Expenses 2,990 2,787 203 7.3% ---------- ---------- ---------- Total Noninterest Expense $ 7,292 $ 7,240 $ 52 0.7% ========== ========== ==========
Operations - Three Months Ended June 30, 2016 compared to Three Months Ended June 30, 2015
Consolidated net income available to common shareholders of $1.7 million for the three months ended June 30, 2016 increased $27,000 compared to the three months ended June 30, 2015. This is attributable to increased net interest income of $862,000, partially offset by increases to the provision for loan losses of $172,000, noninterest expense of $404,000, income tax expense of $74,000 and decreased noninterest income of $185,000.
Net interest income increased $862,000 to $9.9 million for the three months ended June 30, 2016 compared to $9.0 million for the three months ended June 30, 2015. The net interest margin was 3.52% for the three months ended June 30, 2016, an eight basis point decrease from 3.60% for the three months ended June 30, 2015. The decrease in net interest margin was largely the result of lower yields on loans and slightly higher funding costs.
Interest and dividend income increased by $993,000 to $11.9 million for the three months ended June 30, 2016 compared to $10.9 million for the three months ended June 30, 2015, primarily due to increased income from the growth in the average balance of loans and investments and increased investment yields. Interest and dividend income on loans increased $1.1 million due to growth of $91.8 million in the average balance of loans from $874.9 million for the three months ended June 30, 2015 to $966.7 million for the three months ended June 30, 2016. Interest and dividend income on investments increased $196,000 during the second quarter of 2016 compared to the same period in the prior year as average interest-earning investment balances increased $27.0 million and average yields increased from 1.73% to 1.93%. Average loan yields declined 12 basis points from 4.74% for the three months ended June 30, 2015 to 4.62% for the three months ended June 30, 2016, which resulted in a decrease in interest and dividend income of $264,000.
Interest expense increased $131,000 to $2.0 million for the three months ended June 30, 2016 compared to $1.9 million for the three months ended June 30, 2015, due primarily to an increase in the average balances of interest-bearing liabilities and a slight change in the composition of interest-bearing liabilities between the comparable periods. During the three months ended June 30, 2016, interest expense increased $142,000 due to larger average balances of interest-bearing transaction deposit accounts, time deposits and short-term borrowings compared to the same quarter of 2015. Additionally, interest expense increased $60,000 due to increased rates on interest-bearing deposit accounts and debt. These increases to interest expense were partially offset by a reduction in interest expense of $71,000 due to an $11.8 million decrease in average long-term debt balances from the comparable period to $58.8 million for the three months ended June 30, 2016. As a result of the change in the composition of debt, the average rate paid on debt declined from 2.80% for the three months ended June 30, 2015 to 2.66% for the comparable period in 2016.
The Company continued to make progress in controlling overall deposit costs by increasing transaction deposits as a percentage of overall deposits. Average transaction accounts as a percentage of average total deposits increased from 55.6% for the three months ended June 30, 2015 to 57.3% for the three months ended June 30, 2016. Deposit costs at 0.49% were the same for the three months ended June 30, 2016 and 2015, respectively. Average transaction deposits, which include savings, money market, interest-bearing demand and noninterest bearing demand accounts, for the three months ended June 30, 2016 increased $81.6 million or 17.2% to $556.0 million compared to $474.4 million for the comparable period in 2015. The increase in average transaction deposits included growth in average noninterest bearing demand deposits of $26.3 million from $115.9 million for the three months ended June 30, 2015 to $142.2 million for the three months ended June 30, 2016.
The provision for loan losses increased $172,000 to $564,000 for the three months ended June 30, 2016 compared to $392,000 for the three months ended June 30, 2015. Net charge-offs for the quarter decreased $208,000 from $256,000 for the three months ended June 30, 2015 to $48,000 for the three months ended June 30, 2016. 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 increased loan growth. Overall, these changes resulted in a higher provision for loan losses for the comparable periods. The specific allowance is based on management's estimate of realizable value for particular loans and has decreased as specific credits have been resolved through a return to performance, charge-offs and additions to OREO.
Noninterest income decreased by $185,000 to $777,000 for the three months ended June 30, 2016 compared to $962,000 for the three months ended June 30, 2015. During the second quarter of 2016, the Company recognized losses of $448,000 on the disposition of $2.8 million in OREO compared to $18,000 in OREO losses recognized for the comparable period. The OREO losses were partially offset by increases of $205,000 in service charges and $40,000 from miscellaneous and other income sources compared to same three months in the prior year.
For the three months ended June 30, 2016, noninterest expense increased 5.9%, or $404,000, to $7.3 million from $6.9 million for the comparable period in 2015. The Company's 2015 total growth in salary and benefit costs was 3.2%. Total growth of salary and benefits in the first six months of 2016 was $316,000 or 3.9%. The Company's efficiency ratio and noninterest expense as a percentage of average assets for the three months ended June 30, 2016 and 2015 were 68.33% and 2.41%, respectively, and 68.91% and 2.54%, respectively. The following is a summary breakdown of noninterest expense:
Three Months Ended June 30, (dollars in thousands) 2016 2015 $ Change % Change ------------------------------ ---------- ---------- ---------- --------- Compensation and Benefits $ 4,197 $ 3,888 $ 309 7.9% OREO Valuation Allowance and Expenses 105 334 (229) (68.6%) Operating Expenses 2,990 2,666 324 12.2% ---------- ---------- ---------- Total Noninterest Expense $ 7,292 $ 6,888 $ 404 5.9% ========== ========== ==========
Operations - Six Months Ended June 30, 2016 compared to Six Months Ended June 30, 2015
Consolidated net income available to common shareholders of $3.3 million for the six months ended June 30, 2016 decreased $163,000 compared to the six months ended June 30, 2015. This is attributable to increases to the provision for loan losses of $421,000, noninterest expense of $701,000 and decreased noninterest income of $297,000. These decreases to net income were partially offset by increased net interest income of $1.2 million and reductions in income tax expense of $74,000 and preferred dividends of $23,000.
Net interest income increased $1.2 million to $19.3 million for the six months ended June 30, 2016 compared to $18.1 million for the six months ended June 30, 2015. The net interest margin was 3.51% for the six months ended June 30, 2016, a 12 basis point decrease from 3.63% for the six months ended June 30, 2015. The decrease in net interest margin was largely the result of lower yields on loans, slightly higher funding costs and a full quarter of interest expense in the three months ended March 31, 2016 on the $23.0 million 6.25% subordinated notes issued during February 2015.
Interest and dividend income increased by $1.6 million to $23.2 million for the six months ended June 30, 2016 compared to $21.7 million for the six months ended June 30, 2015, primarily due to increased income from the growth in the average balance of loans and investments and increased investment yields. Interest and dividend income on loans increased $1.8 million due to growth of $78.9 million, or 9.1%, in the average balance of loans from $864.0 million for the six months ended June 30, 2015 to $942.9 million for the six months ended June 30, 2016. Interest and dividend income on investments increased $412,000 during the first six months of 2016 compared to the same period in the prior year as average interest-earning investment balances increased $24.1 million and average yields increased from 1.69% to 1.96%. Average loan yields declined 15 basis points from 4.76% for the six months ended June 30, 2015 to 4.61% for the six months ended June 30, 2016, which resulted in a decrease in interest and dividend income of $653,000.
Interest expense increased $385,000 to $4.0 million for the six months ended June 30, 2016 compared to $3.6 million for the six months ended June 30, 2015, due primarily to an increase in the average balances of interest-bearing liabilities. During the six months ended June 30, 2016, interest expense increased $378,000 due to larger average balances of interest-bearing transaction deposit accounts, time deposits, short-term borrowings and subordinated notes compared to the same period of 2015. Additionally, interest expense increased $211,000 due to increased rates on interest-bearing deposit accounts and debt. These increases to interest expense were partially offset by a reduction in interest expense of $204,000 due to a $16.2 million decrease in average long-term debt balances from the comparable period to $55.4 million for the six months ended June 30, 2016. The average rate paid on debt, which includes long-term debt, trust preferred junior subordinated debentures ("TRUPS"), subordinated notes, and short-term borrowings, increased from 2.63% for the six months ended June 30, 2015 to 2.69% for the six months ended June 30, 2016. Interest expense for the six months ended June 30, 2016 was $148,000 greater than the comparable period as a result of the timing of the funding of the subordinated notes in February 2015.
The Company continued to make progress in controlling overall deposit costs by increasing transaction deposits as a percentage of overall deposits. Average transaction accounts as a percentage of average total deposits increased from 55.2% for the six months ended June 30, 2015 to 57.2% for the six months ended June 30, 2016. Deposit costs at 0.48% were the same for the six months ended June 30, 2016 and 2015, respectively. Average transaction deposits, which include savings, money market, interest-bearing demand and noninterest bearing demand accounts, for the six months ended June 30, 2016 increased $74.6 million, or 16.0%, to $541.2 million compared to $466.6 million for the comparable period in 2015. The increase in average transaction deposits included growth in average noninterest bearing demand deposits of $23.6 million, or 20.7%, from $114.0 million for the six months ended June 30, 2015 to $137.6 million for the six months ended June 30, 2016.
The provision for loan losses increased $421,000 to $991,000 for the six months ended June 30, 2016 compared to $570,000 for the six months ended June 30, 2015. Net charge-offs for the first six months increased $131,000 from $294,000 for the six months ended June 30, 2015 to $425,000 for the six months ended June 30, 2016. 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 increased loan growth. Overall, these changes resulted in a higher provision for loan losses for the comparable periods. The specific allowance is based on management's estimate of realizable value for particular loans and has decreased as specific credits have been resolved through a return to performance, charge-offs and additions to other real estate owned.
Noninterest income decreased by $297,000 to $1.6 million for the six months ended June 30, 2016 compared to $1.9 million for the six months ended June 30, 2015. Noninterest income decreased due to the Company's exit from residential loan originations during the second quarter of 2015 and as a result, there were no gains on residential loans held for sale in the six months ended June 30, 2016 compared to $104,000 for the six months ended June 30, 2015. During the first six months of 2016, the Company recognized losses of $443,000 on the disposition of $3.4 million in OREO compared to $18,000 in OREO losses recognized for the comparable period. The decreases to noninterest income were partially offset by increases of $208,000 in service charges and $24,000 from miscellaneous and other income sources compared to same six months in the prior year.
For the six months ended June 30, 2016, noninterest expense increased 5.1%, or $701,000, to $14.5 million from $13.8 million for the comparable period in 2015. The Company's 2015 total growth in salary and benefit costs was 3.2%. Total growth of salary and benefits in the first six months of 2016 was $316,000 or 3.9%. The Company's efficiency ratio and noninterest expense as a percentage of average assets for the six months ended June 30, 2016 and 2015 were 69.48% and 2.46%, respectively, and 69.09% and 2.57%, respectively. The following is a summary breakdown of noninterest expense:
Six Months Ended June 30, (dollars in thousands) 2016 2015 $ Change % Change ---------------------------------- --------- --------- --------- -------- Compensation and Benefits $ 8,349 $ 8,033 $ 316 3.9% OREO Valuation Allowance and Expenses 406 553 (147) (26.6%) Operating Expenses 5,777 5,245 532 10.1% --------- --------- --------- Total Noninterest Expense $ 14,532 $ 13,831 $ 701 5.1% ========= ========= =========
Financial Condition at June 30, 2016 compared to December 31, 2015
Total assets at June 30, 2016 were $1.23 billion, an increase of $90.1 million, or 16.1% on an annualized basis, compared to total assets of $1.14 billion at December 31, 2015. The increase in total assets was primarily attributable to growth in loans. Net loans increased $86.3 million, or 19.1% on an annualized basis, from $909.2 million at December 31, 2015 to $995.5 million at June 30, 2016, mainly due to increases in loans for commercial real estate and residential first mortgages.
The Company separated residential rentals into a new loan portfolio segment beginning in the second quarter of 2016. Residential rentals include income producing properties that are 1-4 family units and apartment buildings. The Company's decision to segregate the residential rental portfolio for financial reporting was based on the growth and size of the portfolio and risk characteristics unique to residential rental properties. Residential rentals were previously included in the residential first mortgage and commercial real estate mortgage portfolios. A schedule of reclassified historical balances is included in a schedule following the balance sheet in this press release.
The following is a breakdown of the Company's loan portfolio at June 30, 2016 and December 31, 2015:
June 30, December 31, (dollars in thousands) 2016 % 2015 % -------------------------------- ------------ ------- ------------ ------- Commercial real estate $ 608,380 60.53% $ 538,888 58.64% Residential first mortgages 148,138 14.74% 131,401 14.30% Residential rentals 100,202 9.97% 93,157 10.14% Construction and land development 35,560 3.54% 36,189 3.94% Home equity and second mortgages 22,104 2.20% 21,716 2.36% Commercial loans 57,167 5.69% 67,246 7.32% Consumer loans 332 0.03% 366 0.04% Commercial equipment 33,185 3.30% 29,931 3.26% ------------ ------- ------------ ------- 1,005,068 100.00% 918,894 100.00% ------------ ------------ Less: Deferred loan fees and premiums 447 0.04% 1,154 0.13% Allowance for loan losses 9,106 0.91% 8,540 0.93% ------------ ------------ 9,553 9,694 ------------ ------------ $ 995,515 $ 909,200 ============ ============
The Company has been working to reduce classified loans by using approaches that maximize the Company's contractual rights with each individual customer relationship. 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 decreased 32 basis points from 1.83% at December 31, 2015 to 1.51% at June 30, 2016. Non-accrual loans, OREO and TDRs to total assets decreased 58 basis points from 2.98% at December 31, 2015 to 2.40% at June 30, 2016.
Management considers classified assets to be an important measure of asset quality. Classified assets have been trending downward the last several years as a percentage of total assets and risk-based regulatory capital and in total dollars from a high point of greater than $81.9 million at September 30, 2011 to $41.4 million as of June 30, 2016 representing a decline of nearly 50%. During the fourth quarter of 2015, the Company reduced classified loans $3.5 million to $32.8 million. Of the fourth quarter 2015 reduction in classified loans, $2.7 million was transferred to OREO. These properties consisted of a 21 unit apartment building and 11 condo units. The Company disposed of $3.4 million of OREO properties during the first six months of 2016, including the aforementioned properties. During the three months ended March 31, 2016, the Company took a deed in lieu of foreclosure on a $2.1 million improved commercial office building with multiple tenants and a ratified contract for its sale. That contract was voided during the second quarter. The Company plans to manage the property until its sale and will recognize miscellaneous rental income during our ownership and management of the property. There is no expected loss from the eventual disposal of this property based on current appraised values, the current rent roll and rents of similar space in the area.
The following is a breakdown of the Company's classified and special mention assets at June 30, 2016, March 31, 2016 and December 31, 2015, 2014, 2013, 2012 and 2011, respectively:
Classified Assets and Special Mention Assets
As of As of As of As of (dollars in thousands) 6/30/2016 3/31/2016 12/31/2015 12/31/2014 ------------------------ ----------- ----------- ----------- ----------- Classified loans Substandard $ 31,433 $ 31,944 $ 31,943 $ 46,735 Doubtful 502 502 861 - Loss - - - - ----------- ----------- ----------- ----------- Total classified loans 31,935 32,446 32,804 46,735 Special mention loans - - 1,642 5,460 ----------- ----------- ----------- ----------- Total classified and special mention loans $ 31,935 $ 32,446 $ 34,446 $ 52,195 =========== =========== =========== =========== Classified loans 31,935 32,446 32,804 46,735 Classified securities 975 1,028 1,093 1,404 Other real estate owned 8,460 11,038 9,449 5,883 ----------- ----------- ----------- ----------- Total classified assets $ 41,370 $ 44,512 $ 43,346 $ 54,022 =========== =========== =========== =========== Total classified assets as a percentage of total assets 3.35 % 3.78 % 3.79 % 4.99 % Total classified assets as a percentage of Risk Based Capital 28.25 % 30.79 % 30.19 % 39.30 % As of As of As of (dollars in thousands) 12/31/2013 12/31/2012 12/31/2011 ------------------------ ----------- ----------- ----------- Classified loans Substandard $ 47,645 $ 48,676 $ 68,515 Doubtful - - - Loss - - 37 ----------- ----------- ----------- Total classified loans 47,645 48,676 68,552 Special mention loans 9,246 6,092 - ----------- ----------- ----------- Total classified and special mention loans $ 56,891 $ 54,768 $ 68,552 =========== =========== =========== Classified loans 47,645 48,676 68,552 Classified securities 2,438 3,028 6,057 Other real estate owned 6,797 6,891 5,029 ----------- ----------- ----------- Total classified assets $ 56,880 $ 58,595 $ 79,638 =========== =========== =========== Total classified assets as a percentage of total assets 5.56 % 5.97 % 8.10 % Total classified assets as a percentage of Risk Based Capital 43.11 % 59.02 % 83.89%
Non-accrual loans (90 days or greater delinquent and non-accrual only loans) decreased $1.2 million from $11.4 million or 1.24% of total loans at December 31, 2015 to $10.2 million or 1.02% of total loans at June 30, 2016. Non-accrual only loans are loans classified as non-accrual due to customer operating results or payment history. In accordance with the Company's policy, interest income is recognized on a cash basis for these loans. The Company had 33 non-accrual loans at June 30, 2016 compared to 38 non-accrual loans at December 31, 2015. Non-accrual loans at June 30, 2016 included $7.7 million, or 75% of non-accrual loans, attributed to 17 loans representing six customer relationships classified as substandard. Non-accrual loans at December 31, 2015 included $8.1 million, or 71% of non-accrual loans, attributed to 19 loans representing six customer relationships classified as substandard. Of these loans at June 30, 2016 and December 31, 2015, $3.6 million and $3.8 million, respectively, represented a residential development project. During the second quarter of 2014, the Company deferred the collection of principal and interest on this project. The project is currently being built out with the support of private equity funds which have been used for vertical construction that has significantly improved the collateral value and the viability of the project. The loans remain classified as troubled debt restructures ("TDRs") and non-accrual. In addition, at June 30, 2016 and December 31, 2015, the Company had three TDR loans totaling $1.6 million and $1.7 million, respectively, classified as non-accrual. These loans are classified solely as non-accrual loans for the calculation of financial ratios.
Loan delinquency (90 days or greater delinquent and 31-89 days delinquent) decreased $1.3 million from $11.7 million, or 1.27% of loans, at December 31, 2015 to $10.4 million, or 1.03% of loans, at June 30, 2016. Loans 31-89 days delinquent decreased $127,000 from $948,000, or 0.10% of total loans, at December 31, 2015 to $821,000, or 0.08% of total loans, at June 30, 2016.
At June 30, 2016, the Company had 19 accruing TDRs totaling $10.9 million compared to 23 accruing TDRs totaling $13.1 million as of December 31, 2015. The Company had specific reserves of $968,000 on seven TDRs totaling $3.3 million at June 30, 2016 and specific reserves of $1.3 million on nine TDRs totaling $3.6 million at December 31, 2015. At June 30, 2016, $8.1 million or 74% of accruing TDRs of $10.9 million relate to one customer relationship. The $8.1 million in TDRs is for eight loans with two construction and land development loans totaling $724,000, one commercial loan of $197,000 and five commercial real estate loans totaling $7.1 million. The loans in this relationship have been classified as TDRs since the fourth quarter of 2014 and have performed according to the terms of their restructured agreements with all required payments made timely. They presently remain as TDRs due to below market rates of interest negotiated at the time of the restructure to obtain additional collateral. The Company has a strong collateral position in this relationship and as of June 30, 2016 has specific reserves of $470,000 on the relationship.
The following is a breakdown by loan classification of the Company's TDRs at June 30, 2016 and December 31, 2015:
June 30, 2016 December 31, 2015 Number Number (dollars in thousands) Dollars of Loans Dollars of Loans ------------------------------ ---------- --------- ---------- --------- Commercial real estate $ 9,715 8 $ 9,839 8 Residential first mortgages 556 2 881 3 Residential rentals 230 1 2,058 5 Construction and land development 4,370 4 4,283 4 Commercial loans 1,141 7 1,384 8 Commercial equipment 118 2 123 2 ---------- --------- ---------- --------- Total TDRs $ 16,130 24 $ 18,568 30 Less: TDRs included in non- accrual loans (5,252) (5) (5,435) (7) ---------- --------- ---------- --------- Total accrual TDR loans $ 10,878 19 $ 13,133 23 ========== ========= ========== =========
The OREO balance was $8.5 million at June 30, 2016, a decrease of $989,000 compared to $9.4 million at December 31, 2015. This decrease consisted of additions of $2.7 million offset by valuation allowances of $262,000 to adjust properties to current appraised values and $3.4 million in disposals. OREO carrying amounts reflect management's estimate of the realizable value of these properties incorporating current appraised values, local real estate market conditions and related costs.
The allowance for loan losses was 0.91% of gross loans at June 30, 2016 and 0.93% at December 31, 2015. There was an increase in the general component of the allowance due to changes to general allowance factors that reflect changes in historical loss, loan growth, delinquency rates and general economic conditions. 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 increased loan growth. The specific allowance is based on management's estimate of realizable value for particular loans. Management believes that the allowance is adequate. The Company increased its general allowance as a percentage of gross loans three basis points from 0.75% at December 31, 2015 to 0.78% at June 30, 2016. The following is a breakdown of the Company's general and specific allowances as a percentage of gross loans at June 30, 2016 and December 31, 2015, respectively.
June 30, % of Gross December 31, % of Gross (dollar in thousands) 2016 Loans 2015 Loans ------------------------ ------------ ----------- ------------ ----------- General Allowance $ 7,883 0.78% $ 6,932 0.75% Specific Allowance 1,223 0.12% 1,608 0.17% ------------ ----------- ------------ ----------- Total Allowance $ 9,106 0.91% $ 8,540 0.93% ============ =========== ============ ===========
The most important weighted factor in the Company's allowance for loan loss methodology is the charge-off history of the loan portfolio. The historical loss experience factor is tracked over various time horizons for each portfolio segment. It is weighted as the most important factor of the general component of the allowance and has decreased as the Company's charge-off history has improved. The following table provides a five-year trend of net charge-offs as a percentage of average loans.
Three Months Ended Six Months Ended June 30, June 30, -------------------- -------------------- (dollars in thousands) 2016 2015 2016 2015 --------------------- --------- --------- --------- --------- Average loans $ 966,701 $ 874,878 $ 942,880 $ 863,955 Net charge-offs 48 256 425 294 Net charge-offs to average loans 0.02 % 0.12 % 0.09 % 0.07 % Years Ended December 31, ----------------------------------------------------- (dollars in thousands) 2015 2014 2013 2012 2011 --------------------- --------- --------- --------- --------- --------- Average loans $ 874,186 $ 819,381 $ 741,369 $ 719,798 $ 671,242 Net charge-offs 1,374 2,309 1,049 1,937 4,101 Net charge-offs to average loans 0.16 % 0.28 % 0.14 % 0.27 % 0.61%
Deposits increased by 19.1% on an annualized basis or $86.6 million, to $993.5 million at June 30, 2016 compared to $906.9 million at December 31, 2015. Between 2012 and 2016, the Company increased transaction deposits, including noninterest bearing deposits, to lower its overall cost of funds. Transaction deposits have increased from 44.9% of total deposits at December 31, 2011 to 57.2% of total deposits at June 30, 2016. Details of the Company's deposit portfolio at June 30, 2016 and December 31, 2015 are presented below:
June 30, 2016 December 31, 2015 (dollars in thousands) Balance % Balance % -------------------------------------- --------- ------- --------- ------- Noninterest-bearing demand $ 142,365 14.33% $ 142,771 15.74% Interest-bearing: Demand 139,334 14.02% 120,918 13.33% Money market deposits 237,372 23.89% 219,956 24.25% Savings 48,670 4.90% 47,703 5.26% Certificates of deposit 425,734 42.85% 375,551 41.41% --------- ------- --------- ------- Total interest-bearing 851,110 85.67% 764,128 84.26% --------- ------- --------- ------- Total Deposits $ 993,475 100.00% $ 906,899 100.00% ========= ======= ========= ======= Transaction accounts $567,741 57.15 % $531,348 58.59%
The Company uses both traditional brokered deposits and reciprocal brokered deposits. Traditional brokered deposits at June 30, 2016 and December 31, 2015 were $119.7 million and $49.1 million, respectively. Reciprocal brokered deposits at June 30, 2016 and December 31, 2015 were $60.2 million and $61.1 million, respectively. The reciprocal brokered deposits have many characteristics of core deposits and are used to maximize FDIC insurance available to our customers.
Long-term debt and short-term borrowings increased $2.0 million from $91.6 million at December 31, 2015 to $93.6 million at June 30, 2016. 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 six months ended June 30, 2016, stockholders' equity increased $2.6 million to $102.4 million. The increase in stockholders' equity was due to net income of $3.3 million, net stock related activities related to stock-based compensation of $176,000 and a current year decrease in accumulated other comprehensive loss of $239,000. These increases to capital were partially offset by quarterly common dividends paid of $907,000 and repurchases of common stock of $336,000. Common stockholders' equity of $102.4 million at June 30, 2016 resulted in a book value of $22.01 per common share compared to $21.48 at December 31, 2015. The Company remains well-capitalized at June 30, 2016 with a Tier 1 capital to average assets ratio of 9.43%.
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 $1.2 billion. Through its 12 banking centers 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 banking centers 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 pending litigation, 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, 2015. 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 June 30, 2016. 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, 2015.
THE COMMUNITY FINANCIAL CORPORATION SELECTED FINANCIAL INFORMATION AND RATIOS (UNAUDITED) Six Months Ended Three Months Ended (Unaudited) (Unaudited) --------------------------------- --------------------- June 30, March 31, June 30, June 30, June 30, 2016 2016 2015 2016 2015 ------------------- ----------- ---------- ---------- ---------- ---------- KEY OPERATING RATIOS Return on average assets 0.57% 0.56% 0.63% 0.57% 0.66% Return on average common equity 6.79 6.37 6.88 6.58 7.10 Return on average total equity 6.79 6.37 6.88 6.58 6.82 Average total equity to average total assets 8.46 8.74 9.18 8.60 9.64 Interest rate spread 3.40 3.37 3.46 3.38 3.51 Net interest margin 3.52 3.50 3.60 3.51 3.63 Cost of funds 0.74 0.73 0.78 0.74 0.74 Cost of deposits 0.49 0.47 0.49 0.48 0.48 Cost of debt 2.66 2.71 2.80 2.69 2.63 Efficiency ratio 68.33 70.68 68.91 69.48 69.09 Non-interest expense to average assets 2.41 2.51 2.54 2.46 2.57 Avg. int-earning assets to avg. int-bearing liabilities 117.61 117.79 116.88 117.70 117.38 Net charge-offs to average loans 0.02 0.16 0.12 0.09 0.07 COMMON SHARE DATA Basic net income per common share $ 0.38 $ 0.35 $ 0.37 $ 0.73 $ 0.75 Diluted net income per common share 0.38 0.35 0.37 0.72 0.75 Cash dividends paid per common share 0.10 0.10 0.10 0.20 0.20 Weighted average common shares outstanding: Basic 4,590,444 4,594,683 4,650,153 4,592,563 4,653,763 Diluted 4,617,794 4,624,603 4,687,201 4,621,199 4,690,811 (Unaudited) ----------- (dollars in thousands, except June 30, December per share amounts) 2016 31, 2015 $ Change % Change ------------------- ----------- ---------- ---------- ---------- ASSET QUALITY Total assets $ 1,233,401 $1,143,332 $ 90,069 7.9% Gross loans 1,005,068 918,894 86,174 9.4 Classified Assets 41,370 43,346 (1,976) (4.6) Allowance for loan losses 9,106 8,540 566 6.6 Past due loans (PDLs) (31 to 89 days) 821 948 (127) (13.4) Nonperforming loans (NPLs) (>=90 days) 9,540 10,740 (1,200) (11.2) Non-accrual loans (a) 10,224 11,433 (1,209) (10.6) Accruing troubled debt restructures (TDRs)(b) 10,878 13,133 (2,255) (17.2) Other real estate owned (OREO) 8,460 9,449 (989) (10.5) ----------- ---------- ---------- ---------- Non-accrual loans, OREO and TDRs 29,562 34,015 (4,453) (13.1) ASSET QUALITY RATIOS Classified assets to total assets 3.35% 3.79% Classified assets to risk-based capital 28.25 30.19 Allowance for loan losses to total loans 0.91 0.93 Allowance for loan losses to nonperforming loans 95.45 79.52 Past due loans (PDLs) to total loans 0.08 0.10 Nonperforming loans (NPLs) to total loans 0.95 1.17 Loan delinquency (PDLs + NPLs) to total loans 1.03 1.27 Non-accrual loans to total loans 1.02 1.24 Non-accrual loans and TDRs to total loans 2.10 2.67 Non-accrual loans and OREO to total assets 1.51 1.83 Non-accrual loans, OREO and TDRs to total assets 2.40 2.98 COMMON SHARE DATA Book value per common share $ 22.01 $ 21.48 Common shares outstanding at end of period 4,651,486 4,645,429 OTHER DATA Number of: Full-time equivalent employees 167 171 Branches 12 12 Loan Production Offices 5 5 REGULATORY CAPITAL RATIOS Tier 1 capital to average assets 9.43% 10.01% Tier 1 common capital to risk- weighted assets 10.01 10.16 Tier 1 capital to risk-weighted assets 11.18 11.38 Total risk-based capital to risk- weighted assets 14.32 14.58
(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. Interest and principal are recognized on a cash-basis in accordance with the Bank's policy if the loans are not impaired or there is no impairment. (b) At June 30, 2016 and December 31, 2015, the Bank had total TDRs of $16.1 million and $18.6 million, respectively, with three TDR relationships totaling $5.3 million and $5.4 million, respectively, in non-accrual status. These loans are classified as non-accrual loans for the calculation of financial ratios.
THE COMMUNITY FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Three Months Ended June 30, March 31, (dollars in thousands, except per share amounts) 2016 2016 ------------------------------------------------------- --------- --------- Interest and Dividend Income Loans, including fees $ 11,170 $ 10,545 Taxable interest and dividends on investment securities 752 763 Interest on deposits with banks 6 4 --------- --------- Total Interest and Dividend Income 11,928 11,312 --------- --------- Interest Expense Deposits 1,182 1,095 Short-term borrowings 49 38 Long-term debt 802 786 --------- --------- Total Interest Expense 2,033 1,919 --------- --------- Net Interest Income 9,895 9,393 Provision for loan losses 564 427 --------- --------- Net Interest Income After Provision For Loan Losses 9,331 8,966 --------- --------- Noninterest Income Loan appraisal, credit, and miscellaneous charges 102 61 Gain on sale of asset 4 - Net (losses) gains on sale of OREO (448) 5 Net gains on sale of investment securities 39 - Loss on premises and equipment held for sale - - Income from bank owned life insurance 198 196 Service charges 882 588 Gain on sale of loans held for sale - - --------- --------- Total Noninterest Income 777 850 --------- --------- Noninterest Expense Salary and employee benefits 4,197 4,152 Occupancy expense 636 589 Advertising 156 63 Data processing expense 580 554 Professional fees 380 425 Depreciation of furniture, fixtures, and equipment 206 196 Telephone communications 46 44 Office supplies 29 43 FDIC Insurance 184 243 OREO valuation allowance and expenses 105 301 Other 773 630 --------- --------- Total Noninterest Expense 7,292 7,240 --------- --------- Income before income taxes 2,816 2,576 Income tax expense 1,078 968 --------- --------- Net Income Available to Common Stockholders $ 1,738 $ 1,608 ========= ========= Earnings Per Common Share Basic $ 0.38 $ 0.35 Diluted $ 0.38 $ 0.35 Cash dividends paid per common share $ 0.10 $ 0.10
The following table presents information on the average balances of the Company's interest-earning assets and interest-bearing liabilities and interest earned or paid thereon for the three months ended June 30, 2016 and March 31, 2016, respectively. There are no tax equivalency adjustments.
For the Three Months Ended -------------------------------------------------------- June 30, 2016 March 31, 2016 --------------------------- --------------------------- Average Average dollars in Average Yield/ Average Yield/ thousands Balance Interest Cost Balance Interest Cost ---------- -------- ------- ---------- -------- ------- Assets Interest-earning assets: Loan portfolio (1) $ 966,701 $ 11,170 4.62% $ 919,058 $ 10,545 4.59% Investment securities, federal funds sold and interest-bearing deposits 156,893 758 1.93% 154,781 767 1.98% ---------- -------- ---------- -------- Total Interest- Earning Assets 1,123,594 11,928 4.25% 1,073,839 11,312 4.21% -------- Cash and cash equivalents 12,206 9,312 Other assets 73,877 71,331 ---------- ---------- Total Assets $1,209,677 $1,154,482 ========== ========== Liabilities and Stockholders' Equity Interest-bearing liabilities: Savings $ 47,888 $ 14 0.12% $ 46,596 $ 12 0.10% Interest-bearing demand and money market accounts 365,966 286 0.31% 346,838 255 0.29% Certificates of deposit 413,952 883 0.85% 396,502 828 0.84% Long-term debt 58,835 352 2.39% 51,926 345 2.66% Short-term borrowings 33,754 49 0.58% 34,790 38 0.44% Subordinated notes 23,000 359 6.24% 23,000 359 6.24% Guaranteed preferred beneficial interest in junior subordinated debentures 12,000 90 3.00% 12,000 82 2.73% ---------- -------- ---------- -------- Total Interest- Bearing Liabilities 955,395 2,033 0.85% 911,652 1,919 0.84% -------- -------- Noninterest- bearing demand deposits 142,182 133,021 Other liabilities 9,724 8,865 Stockholders' equity 102,376 100,944 ---------- ---------- Total Liabilities and Stockholders' Equity $1,209,677 $1,154,482 ========== ========== Net interest income $ 9,895 $ 9,393 ======== ======== Interest rate spread 3.40% 3.37% ======= ======= Net yield on interest-earning assets 3.52% 3.50% ======= ======= Ratio of average interest-earning assets to average interest bearing liabilities 117.61% 117.79% ======= ======= Cost of funds 0.74% 0.73% ======= ======= Cost of deposits 0.49% 0.47% ======= ======= Cost of debt 2.66% 2.71% ======= =======
(1) Average balance includes non-accrual loans
The table below sets forth certain information regarding changes in interest income and interest expense of the Company for the periods indicated. For each category of interest earning asset and interest bearing liability, information is provided on changes attributable to (1) changes in volume (changes in volume multiplied by old rate); and (2) changes in rate (changes in rate multiplied by old volume). Changes in rate volume (changes in rate multiplied by the change in volume) have been allocated to changes due to volume.
Three Months Ended June 30, 2016 compared to Three Months Ended March 31, 2016 Due to dollars in thousands Volume Rate Total ---------- ---------- ---------- Interest income: Loan portfolio (1) $ 551 $ 74 625 Investment securities, federal funds sold and interest bearing deposits 10 (19) (9) ---------- ---------- ---------- Total interest-earning assets $ 544 $ 72 $ 616 ========== ========== ========== Interest-bearing liabilities: Savings - 2 2 Interest-bearing demand and money market accounts 15 16 31 Certificates of deposit 37 18 55 Long-term debt 41 (34) 7 Short-term borrowings (2) 13 11 Subordinated notes - - - Guaranteed preferred beneficial interest in junior subordinated debentures - 8 8 ---------- ---------- ---------- Total interest-bearing liabilities $ 91 $ 23 $ 114 ========== ========== ========== Net change in net interest income $ 453 $ 49 $ 502 ========== ========== ==========
(1) Average balance includes non-accrual loans
THE COMMUNITY FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Three Months Ended Six Months Ended June 30, June 30, (dollars in thousands, except per share amounts ) 2016 2015 2016 2015 -------------------------------- --------- --------- --------- --------- Interest and Dividend Income Loans, including fees $ 11,170 $ 10,373 $ 21,715 $ 20,550 Taxable interest and dividends on investment securities 752 560 1,515 1,107 Interest on deposits with banks 6 2 10 6 --------- --------- --------- --------- Total Interest and Dividend Income 11,928 10,935 23,240 21,663 --------- --------- --------- --------- Interest Expense Deposits 1,182 1,042 2,277 2,030 Short-term borrowings 49 12 87 21 Long-term debt 802 848 1,588 1,516 --------- --------- --------- --------- Total Interest Expense 2,033 1,902 3,952 3,567 --------- --------- --------- --------- Net Interest Income 9,895 9,033 19,288 18,096 Provision for loan losses 564 392 991 570 --------- --------- --------- --------- Net Interest Income After Provision For Loan Losses 9,331 8,641 18,297 17,526 --------- --------- --------- --------- Noninterest Income Loan appraisal, credit, and miscellaneous charges 102 90 163 148 Gain on sale of asset 4 1 4 19 Net losses on sale of OREO (448) (18) (443) (18) Net gains (losses) on sale of investment securities 39 - 39 (1) Income from bank owned life insurance 198 205 394 410 Service charges 882 677 1,470 1,262 Gain on sale of loans held for sale - 7 - 104 --------- --------- --------- --------- Total Noninterest Income 777 962 1,627 1,924 --------- --------- --------- --------- Noninterest Expense Salary and employee benefits 4,197 3,888 8,349 8,033 Occupancy expense 636 605 1,225 1,235 Advertising 156 183 219 286 Data processing expense 580 507 1,134 1,025 Professional fees 380 272 805 567 Depreciation of furniture, fixtures, and equipment 206 204 402 405 Telephone communications 46 39 90 85 Office supplies 29 31 72 70 FDIC Insurance 184 190 427 388 OREO valuation allowance and expenses 105 334 406 553 Other 773 635 1,403 1,184 --------- --------- --------- --------- Total Noninterest Expense 7,292 6,888 14,532 13,831 --------- --------- --------- --------- Income before income taxes 2,816 2,715 5,392 5,619 Income tax expense 1,078 1,004 2,046 2,087 --------- --------- --------- --------- Net Income $ 1,738 $ 1,711 $ 3,346 $ 3,532 Preferred stock dividends - - - 23 --------- --------- --------- --------- Net Income Available to Common Stockholders $ 1,738 $ 1,711 $ 3,346 $ 3,509 ========= ========= ========= ========= Earnings Per Common Share Basic $ 0.38 $ 0.37 $ 0.73 $ 0.75 Diluted $ 0.38 $ 0.37 $ 0.72 $ 0.75 Cash dividends paid per common share $ 0.10 $ 0.10 $ 0.20 $ 0.20
The following table presents information on the average balances of the Company's interest-earning assets and interest-bearing liabilities and interest earned or paid thereon for the three months ended June 30, 2016 and 2015, respectively. There are no tax equivalency adjustments.
For the Three Months Ended June 30, -------------------------------------------------------- 2016 2015 Average Average dollars in Average Yield/ Average Yield/ thousands Balance Interest Cost Balance Interest Cost ---------- -------- ------- ---------- -------- ------- Assets Interest-earning assets: Loan portfolio (1) $ 966,701 $ 11,170 4.62% $ 874,878 $ 10,373 4.74% Investment securities, federal funds sold and interest-bearing deposits 156,893 758 1.93% 129,886 562 1.73% ---------- -------- ---------- -------- Total Interest- Earning Assets 1,123,594 11,928 4.25% 1,004,764 10,935 4.35% -------- -------- Cash and cash equivalents 12,206 12,027 Other assets 73,877 67,356 ---------- ---------- Total Assets $1,209,677 $1,084,147 ========== ========== Liabilities and Stockholders' Equity Interest-bearing liabilities: Savings $ 47,888 $ 14 0.12% $ 44,897 $ 12 0.11% Interest-bearing demand and money market accounts 365,966 286 0.31% 313,633 214 0.27% Certificates of deposit 413,952 883 0.85% 378,221 816 0.86% Long-term debt 58,835 352 2.39% 70,649 404 2.29% Short-term borrowings 33,754 49 0.58% 17,240 12 0.28% Subordinated notes 23,000 359 6.24% 23,000 368 6.40% Guaranteed preferred beneficial interest in junior subordinated debentures 12,000 90 3.00% 12,000 76 2.53% ---------- -------- ---------- -------- Total Interest- Bearing Liabilities 955,395 2,033 0.85% 859,640 1,902 0.89% -------- -------- Noninterest- bearing demand deposits 142,182 115,907 Other liabilities 9,724 9,060 Stockholders' equity 102,376 99,540 ---------- ---------- Total Liabilities and Stockholders' Equity $1,209,677 $1,084,147 ========== ========== Net interest income $ 9,895 $ 9,033 ======== ======== Interest rate spread 3.40% 3.46% ======= ======= Net yield on interest-earning assets 3.52% 3.60% ======= ======= Ratio of average interest-earning assets to average interest bearing liabilities 117.61% 116.88% ======= ======= Cost of funds 0.74% 0.78% ======= ======= Cost of deposits 0.49% 0.49% ======= ======= Cost of debt 2.66% 2.80% ======= =======
(1) Average balance includes non-accrual loans
The table below sets forth certain information regarding changes in interest income and interest expense of the Company for the periods indicated. For each category of interest earning asset and interest bearing liability, information is provided on changes attributable to (1) changes in volume (changes in volume multiplied by old rate); and (2) changes in rate (changes in rate multiplied by old volume). Changes in rate volume (changes in rate multiplied by the change in volume) have been allocated to changes due to volume.
For the Three Months Ended June 30, 2016 compared to the Three Months Ended June 30, 2015 Due to dollars in thousands Volume Rate Total --------- --------- --------- Interest income: Loan portfolio (1) $ 1,061 $ (264) $ 797 Investment securities, federal funds sold and interest bearing deposits 130 66 196 --------- --------- --------- Total interest-earning assets $ 1,191 $ (198) $ 993 ========= ========= ========= Interest-bearing liabilities: Savings 1 1 2 Interest-bearing demand and money market accounts 41 31 72 Certificates of deposit 76 (9) 67 Long-term debt (71) 19 (52) Short-term borrowings 24 13 37 Subordinated notes - (9) (9) Guaranteed preferred beneficial interest in junior subordinated debentures - 14 14 --------- --------- --------- Total interest-bearing liabilities $ 71 $ 60 $ 131 ========= ========= ========= Net change in net interest income $ 1,120 $ (258) $ 862 ========= ========= =========
(1) Average balance includes non-accrual loans
The following table presents information on the average balances of the Company's interest-earning assets and interest-bearing liabilities and interest earned or paid thereon for the six months ended June 30, 2016 and 2015, respectively. There are no tax equivalency adjustments.
For the Six Months Ended June 30, -------------------------------------------------------- 2016 2015 Average Average dollars in Average Yield/ Average Yield/ thousands Balance Interest Cost Balance Interest Cost ---------- -------- ------- ---------- -------- ------- Assets Interest-earning assets: Loan portfolio (1) $ 942,880 $ 21,715 4.61% $ 863,955 $ 20,550 4.76% Investment securities, federal funds sold and interest-bearing deposits 155,837 1,525 1.96% 131,727 1,113 1.69% ---------- -------- ---------- -------- Total Interest- Earning Assets 1,098,717 23,240 4.23% 995,682 21,663 4.35% -------- -------- Cash and cash equivalents 10,759 12,095 Other assets 72,604 66,869 ---------- ---------- Total Assets $1,182,080 $1,074,646 ========== ========== Liabilities and Stockholders' Equity Interest-bearing liabilities: Savings $ 47,242 $ 26 0.11% $ 43,641 $ 22 0.10% Interest-bearing demand and money market accounts 356,402 540 0.30% 308,988 405 0.26% Certificates of deposit 405,227 1,711 0.84% 378,798 1,603 0.85% Long-term debt 55,380 697 2.52% 71,584 794 2.22% Short-term borrowings 34,272 87 0.51% 14,787 21 0.28% Subordinated notes 23,000 719 6.25% 18,425 571 6.20% Guaranteed preferred beneficial interest in junior subordinated debentures 12,000 172 2.87% 12,000 151 2.52% ---------- -------- ---------- -------- Total Interest- Bearing Liabilities 933,523 3,952 0.85% 848,223 3,567 0.84% -------- -------- Noninterest- bearing demand deposits 137,602 113,982 Other liabilities 9,295 8,868 Stockholders' equity 101,660 103,573 ---------- ---------- Total Liabilities and Stockholders' Equity $1,182,080 $1,074,646 ========== ========== Net interest income $ 19,288 $ 18,096 ======== ======== Interest rate spread 3.38% 3.51% ======= ======= Net yield on interest-earning assets 3.51% 3.63% ======= ======= Ratio of average interest-earning assets to average interest bearing liabilities 117.70% 117.38% ======= ======= Cost of funds 0.74% 0.74% ======= ======= Cost of deposits 0.48% 0.48% ======= ======= Cost of debt 2.69% 2.63% ======= =======
(1) Average balance includes non-accrual loans
The table below sets forth certain information regarding changes in interest income and interest expense of the Company for the periods indicated. For each category of interest earning asset and interest bearing liability, information is provided on changes attributable to (1) changes in volume (changes in volume multiplied by old rate); and (2) changes in rate (changes in rate multiplied by old volume). Changes in rate volume (changes in rate multiplied by the change in volume) have been allocated to changes due to volume.
For the Six Months Ended June 30, 2016 compared to the Six Months Ended June 30, 2015 Due to dollars in thousands Volume Rate Total --------- --------- --------- Interest income: Loan portfolio (1) $ 1,818 $ (653) $ 1,165 Investment securities, federal funds sold and interest bearing deposits 236 176 412 --------- --------- --------- Total interest-earning assets $ 2,054 $ (477) $ 1,577 ========= ========= ========= Interest-bearing liabilities: Savings 2 2 4 Interest-bearing demand and money market accounts 72 63 135 Certificates of deposit 112 (4) 108 Long-term debt (204) 107 (97) Short-term borrowings 49 17 66 Subordinated notes 143 5 148 Guaranteed preferred beneficial interest in junior subordinated debentures - 21 21 --------- --------- --------- Total interest-bearing liabilities $ 174 $ 211 $ 385 ========= ========= ========= Net change in net interest income $ 1,880 $ (688) $ 1,192 ========= ========= =========
(1) Average balance includes non-accrual loans
THE COMMUNITY FINANCIAL CORPORATION CONSOLIDATED BALANCE SHEETS June 30, December 31, 2016 2015 (dollars in thousands) (Unaudited) ------------------------------------------------ ------------ ------------ Assets Cash and due from banks $ 8,922 $ 9,059 Federal funds sold 90 225 Interest-bearing deposits with banks 4,011 1,855 Securities available for sale (AFS), at fair value 39,837 35,116 Securities held to maturity (HTM), at amortized cost 107,772 109,420 Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) stock - at cost 5,005 6,931 Loans receivable - net of allowance for loan losses of $9,106 and $8,540 995,515 909,200 Premises and equipment, net 22,807 20,156 Premises and equipment held for sale - 2,000 Other real estate owned (OREO) 8,460 9,449 Accrued interest receivable 3,486 3,218 Investment in bank owned life insurance 28,230 27,836 Other assets 9,266 8,867 ------------ ------------ Total Assets $ 1,233,401 $ 1,143,332 ============ ============ Liabilities and Stockholders' Equity Liabilities Deposits Non-interest-bearing deposits $ 142,365 $ 142,771 Interest-bearing deposits 851,110 764,128 ------------ ------------ Total deposits 993,475 906,899 Short-term borrowings 28,000 36,000 Long-term debt 65,588 55,617 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 8,972 10,033 ------------ ------------ Total Liabilities 1,131,035 1,043,549 ------------ ------------ Stockholders' Equity Common stock - par value $.01; authorized - 15,000,000 shares; issued 4,651,486 and 4,645,429 shares, respectively 47 46 Additional paid in capital 47,007 46,809 Retained earnings 55,574 53,495 Accumulated other comprehensive gain (loss) 54 (251) Unearned ESOP shares (316) (316) ------------ ------------ Total Stockholders' Equity 102,366 99,783 ------------ ------------ Total Liabilities and Stockholders' Equity $ 1,233,401 $ 1,143,332 ============ ============
Loan Portfolio Segment Historical Balances with New Portfolio Loan Segment Residential Rentals (1) --------------------------------------------------------------------------- (dollars in thousands) June 30, 2016 March 31, 2016 ------------------------------------ ------------------ ------------------ Commercial real estate $ 608,380 60.53% $ 570,415 60.36% Residential first mortgages 148,138 14.74% 134,289 14.21% Residential rentals 100,202 9.97% 94,805 10.03% Construction and land development 35,560 3.54% 38,687 4.09% Home equity and second mortgages 22,104 2.20% 21,019 2.22% Commercial loans 57,167 5.69% 54,220 5.74% Consumer loans 332 0.03% 330 0.03% Commercial equipment 33,185 3.30% 31,379 3.32% ----------- ------ ----------- ------ $ 1,005,068 100.00% $ 945,144 100.00% =========== ====== =========== ======
(dollars in thousands) December 31, 2015 September 30, 2015 ------------------------------------ ------------------ ------------------ Commercial real estate $ 538,888 58.64% $ 529,573 58.87% Residential first mortgages 131,401 14.30% 134,386 14.94% Residential rentals 93,157 10.14% 96,115 10.69% Construction and land development 36,189 3.94% 38,132 4.24% Home equity and second mortgages 21,716 2.36% 21,230 2.36% Commercial loans 67,246 7.32% 51,884 5.77% Consumer loans 366 0.04% 403 0.04% Commercial equipment 29,931 3.26% 27,765 3.09% ---------- ------- ---------- ------- $ 918,894 100.00% $ 899,488 100.00% ========== ======= ========== ======= (dollars in thousands) December 31, 2014 September 30, 2014 ------------------------------------ ------------------ ------------------ Commercial real estate $ 485,602 55.68% $ 472,711 55.85% Residential first mortgages 146,539 16.80% 149,500 17.66% Residential rentals 81,777 9.38% 78,687 9.30% Construction and land development 36,370 4.17% 33,986 4.02% Home equity and second mortgages 21,452 2.46% 21,330 2.52% Commercial loans 73,625 8.44% 63,681 7.52% Consumer loans 613 0.07% 661 0.08% Commercial equipment 26,152 3.00% 25,837 3.05% ---------- ------- ---------- ------- $ 872,130 100.00% $ 846,393 100.00% ========== ======= ========== ======= (dollars in thousands) June 30, 2015 March 31, 2015 ------------------------------------ ------------------ ------------------ Commercial real estate $ 522,825 58.37% $ 510,030 57.22% Residential first mortgages 137,439 15.34% 142,963 16.04% Residential rentals 84,668 9.45% 83,831 9.41% Construction and land development 39,159 4.37% 37,349 4.19% Home equity and second mortgages 21,068 2.35% 21,211 2.38% Commercial loans 63,480 7.09% 68,504 7.69% Consumer loans 396 0.04% 464 0.05% Commercial equipment 26,804 2.99% 26,932 3.02% ---------- ------- ---------- ------- $ 895,839 100.00% $ 891,284 100.00% ========== ======= ========== ======= (dollars in thousands) June 30, 2014 March 31, 2014 ------------------------------------ ------------------ ------------------ Commercial real estate $ 463,704 54.79% $ 439,758 53.65% Residential first mortgages 151,395 17.89% 153,039 18.67% Residential rentals 73,653 8.70% 69,846 8.52% Construction and land development 32,086 3.79% 30,611 3.73% Home equity and second mortgages 21,225 2.51% 21,699 2.65% Commercial loans 77,583 9.17% 80,297 9.80% Consumer loans 736 0.09% 691 0.08% Commercial equipment 25,877 3.06% 23,742 2.90% ---------- ------- ---------- ------- $ 846,259 100.00% $ 819,683 100.00% ========== ======= ========== =======
(1) Residential rental balances were previously included in the residential first mortgage and commercial real estate portfolios.
CONTACT: William J. Pasenelli Chief Executive Officer 888.745.2265