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The Community Financial Corporation Announces Results of Operations for Fourth Quarter of 2016

WALDORF, Md., Jan. 20, 2017 (GLOBE NEWSWIRE) -- The Community Financial Corporation (NASDAQ:TCFC) (the “Company”), the holding company for Community Bank of the Chesapeake (the “Bank”), reported its results of operations for the fourth quarter and year ended December 31, 2016. Consolidated net income available to common shareholders was $2.0 million for the three months ended December 31, 2016, an increase of $494,000, compared to $1.5 million for the three months ended December 31, 2015. Earnings per common share (diluted) at $0.44 increased $0.11 from $0.33 per common share (diluted) for the three months ended December 31, 2015. The Company’s returns on average assets and common stockholders’ equity for the fourth quarter of 2016 were 0.62% and 7.68%, respectively, compared to 0.55% and 6.06% , respectively, for the fourth quarter of 2015.

Consolidated net income available to common shareholders was $7.3 million for the year ended December 31, 2016, an increase of $1.0 million, compared to $6.3 million for the year ended December 31, 2015. Earnings per common share (diluted) for the full year of 2016 at $1.59 increased $0.24 from $1.35 per common share (diluted) for the year ended December 31, 2015. The Company’s returns on average assets and common stockholders’ equity, for the full year of 2016 were 0.60% and 7.09%, respectively, compared to 0.58% and 6.33%, respectively, for the full year of 2015.

William J. Pasenelli, Chief Executive Officer and Vice-Chairman of the Board, stated, “During 2016 we made substantial progress increasing operating leverage. Earnings increased due to significant loan growth and controlled noninterest expense. Net interest income increased $3.4 million or 9.2%, compared to noninterest expense growth of $741,000 or 2.6%. This was accomplished in a declining interest rate environment for most of 2016. Our 2016 loan growth of $170.3 million or 18.7% to $1,079.5 million, should position the Company to further increase operating leverage during 2017.”

During the fourth quarter, the Company’s efficiency and net operating expense ratios1 improved to 64.38% and 1.98%, respectively.

Net Interest Income

Net interest income increased 12.0% or $1.1 million to $10.5 million for the three months ended December 31, 2016 compared to $9.4 million for the three months ended December 31, 2015. Net interest margin at 3.45% for the three months ended December 31, 2016 decreased 16 basis points from 3.61% for the three months ended December 31, 2015. Average interest-earning assets were $1,213.5 million for the fourth quarter of 2016, an increase of $176.6 million or 17.0%, compared to $1,036.9 million for the same quarter of 2015.

Net interest income increased 9.2% or $3.4 million to $39.9 million for the year ended December 31, 2016 compared to $36.5 million for the year ended December 31, 2015. Net interest margin at 3.48% for the year ended December 31, 2016 decreased 12 basis points from 3.60% for the year ended December 31, 2015. Average interest-earning assets were $1,145.5 million for the full year of 2016, an increase of $132.1 million or 13.0%, compared to $1,013.4 million for the full year of 2015.

Net interest margin declined during 2016, primarily due to reduced yields on loans. Yields on the loan portfolio decreased from 4.73% for the year ended December 31, 2015 to 4.55% for the year ended December 31, 2016. Yields were reduced compared to the prior year due to the Bank’s increased investment in residential mortgages, increased competition in the Bank’s market area and low intermediate term interest rates. Interest rates were depressed for most of 2016, with the ten year U.S. Treasury rate as low as 1.37% (July 8, 2016).

Net interest margin was positively impacted by a reduction in its cost of funds during 2016, which decreased two basis points from 0.75% for the year ended December 31, 2015 to 0.73% for the year ended December 31, 2016. The Company continued to make progress in controlling deposit costs by increasing transaction deposits as a percentage of overall deposits. Average transaction deposits, which include savings, money market, interest-bearing demand and noninterest bearing demand accounts, for the year ended December 31, 2016 increased $83.4 million, or 17.1%, to $571.6 million compared to $488.2 million for the comparable period in 2015. Average transaction accounts as a percentage of total deposits increased from 56.3% for the year ended December 31, 2015 to 58.3% for the year ended December 31, 2016. The increase in average transaction deposits included growth in noninterest bearing demand deposits of $21.6 million, or 17.9%, from $120.5 million for the year ended December 31, 2015 to $142.1 million for the year ended December 31, 2016.

1 Efficiency Ratio - noninterest expense divided by the sum of net interest income and noninterest income.
Net Operating Expense Ratio - noninterest expense less noninterest income divided by average assets.

Noninterest Income

Noninterest income was flat at $891,000 for the three months ended December 31, 2016 compared to $909,000 for the three months ended December 31, 2015.

Noninterest income increased by $61,000 to $3.4 million for the year ended December 31, 2016 compared to $3.3 million for the year ended December 31, 2015. Noninterest income was up $187,000 compared to the prior year due to higher service charge income from the growth in the number of customer accounts, wealth services and rental income on other real estate owned (“OREO”) properties. In addition, there were no losses recognized in 2016 for the sale of branch assets. During the third quarter 2015, the Bank recorded an expense of $426,000 to account for the loss on the sale of the King George, Virginia branch building and equipment. These increases to noninterest income were partially offset by decreases to noninterest income from the Company’s exit from the origination of residential first mortgage loans during the second quarter of 2015. There were no gains on residential loans held for sale in the year ended December 31, 2016 compared to $104,000 for the year ended December 31, 2015. In addition, the Company recognized losses of $436,000 on the disposition of OREO for the year ended December 31, 2016 compared to $20,000 in OREO losses recognized for the comparable period.

Noninterest Expense

Noninterest expense was controlled at an average run rate of just below $7.3 million per quarter during 2016. The Company remained focused during 2016 on its initiative to control the growth of expenses by streamlining internal processes and reviewing vendor relationships. These efforts resulted in a reduction in nine FTEs from 171 employees to 162 employees during the year ended December 31, 2016. The Company’s strategy to create operating leverage through continued asset growth combined with controlling the growth in expenses is expected to continue during 2017.

For the three months ended December 31, 2016, noninterest expense decreased 3.2%, or $240,000, to $7.3 million from $7.6 million for the comparable period in 2015. The Company’s efficiency ratio for the three months ended December 31, 2016 and 2015 was 64.38% and 73.67% ,respectively. The Company’s net operating expense ratio as a percentage of average assets for the three months ended December 31, 2016 and 2015 was 1.98% and 2.38%, respectively. These ratios improved in each successive quarter during 2016. The following is a summary breakdown of noninterest expense:

Three Months Ended December 31,
(dollars in thousands) 2016 2015 $ Change % Change
Compensation and Benefits $ 4,193 $ 4,148 $ 45 1.1%
OREO Valuation Allowance and Expenses 252 377 (125) (33.2%)
Operating Expenses 2,871 3,031 (160) (5.3%)
Total Noninterest Expense $ 7,316 $ 7,556 $ (240) (3.2%)

For the year ended December 31, 2016, noninterest expense increased 2.6%, or $741,000, to $29.2 million from $28.4 million for the comparable period in 2015. The Company’s 2015 total growth in salary and benefit costs was 3.2% compared to 2.7% growth during 2016. The Company’s efficiency ratio for the year ended December 31, 2016 and 2015 was 67.40% and 71.35%, respectively. The Company’s net operating expense ratio as a percentage of average assets for the year ended December 31, 2016 and 2015 was 2.10% and 2.30%, respectively. The following is a summary breakdown of noninterest expense:

Years Ended December 31,
(dollars in thousands) 2016 2015 $ Change % Change
Compensation and Benefits $ 16,810 $ 16,366 $ 444 2.7%
OREO Valuation Allowance and Expenses 861 1,059 (198) (18.7%)
Operating Expenses 11,488 10,993 495 4.5%
Total Noninterest Expense $ 29,159 $ 28,418 $ 741 2.6%

Balance Sheet and Asset Quality

Balance Sheet

Total assets at December 31, 2016 were $1.33 billion, an increase of $190.9 million, or 16.7% 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 $170.3 million, or 18.7% from $909.2 million at December 31, 2015 to $1,079.5 million at December 31, 2016, mainly due to increases in loans secured by commercial real estate and residential first mortgages.

Prior to April 1, 2016, loans secured by residential rental property were included in the residential first mortgage and commercial real estate loan portfolios. Beginning in the second quarter of 2016, the Company segregated loans secured by residential rental property into a new loan portfolio segment. Residential rental property includes income producing properties comprising 1-4 family units and apartment buildings. The Company’s decision to segregate the residential rental property portfolio for financial reporting was based on the growth and size of the portfolio and risk characteristics unique to residential rental properties.

The following is a breakdown of the Company’s loan portfolio at December 31, 2016 and December 31, 2015:

(dollars in thousands) December 31, 2016 % December 31, 2015 %
Commercial real estate $ 667,105 61.28% $ 538,888 58.64%
Residential first mortgages 171,004 15.70% 131,401 14.30%
Residential rentals 101,897 9.36% 93,157 10.14%
Construction and land development 36,934 3.39% 36,189 3.94%
Home equity and second mortgages 21,399 1.97% 21,716 2.36%
Commercial loans 50,484 4.64% 67,246 7.32%
Consumer loans 422 0.04% 366 0.04%
Commercial equipment 39,737 3.65% 29,931 3.26%
1,088,982 100.00% 918,894 100.00%
Less:
Deferred loan fees and premiums (397) -0.04% 1,154 0.13%
Allowance for loan losses 9,860 0.91% 8,540 0.93%
9,463 9,694
$ 1,079,519 $ 909,200

Deposits increased by 14.5% or $131.9 million, to $1,038.8 million at December 31, 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 58.3% of total deposits at December 31, 2016.

The Company uses both traditional brokered deposits and reciprocal brokered deposits. Traditional brokered deposits at December 31, 2016 and December 31, 2015 were $131.0 million and $49.1 million, respectively. Reciprocal brokered deposits at December 31, 2016 and December 31, 2015 were $70.7 million and $61.1 million, respectively. Reciprocal brokered deposits are used to maximize FDIC insurance available to our customers. The following is a breakdown of the Company’s deposit portfolio at December 31, 2016 and December 31, 2015:

December 31, 2016 December 31, 2015
(dollars in thousands) Balance % Balance %
Noninterest-bearing demand $ 144,877 13.95% $ 142,771 15.74%
Interest-bearing:
Demand 162,823 15.67% 120,918 13.33%
Money market deposits 248,049 23.88% 219,956 24.25%
Savings 50,284 4.84% 47,703 5.26%
Certificates of deposit 432,792 41.66% 375,551 41.41%
Total interest-bearing 893,948 86.05% 764,128 84.26%
Total Deposits $ 1,038,825 100.00% $ 906,899 100.00%
Transaction accounts $ 606,033 58.34% $ 531,348 58.59%

Long-term debt and short-term borrowings increased $52.9 million from $91.6 million at December 31, 2015 to $144.6 million at December 31, 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 year ended December 31, 2016, stockholders’ equity increased $4.6 million to $104.4 million. The increase in stockholders’ equity was due to net income of $7.3 million and net stock related activities related to stock-based compensation of $669,000. These increases to capital were partially offset by quarterly common dividends paid of $1.8 million, repurchases of common stock of $865,000 and a current year increase in accumulated other comprehensive loss of $677,000. Common stockholders' equity of $104.4 million at December 31, 2016 resulted in a book value of $22.54 per common share compared to $21.48 at December 31, 2015. The Company remains well-capitalized at December 31, 2016 with a Tier 1 capital to average assets ratio of 9.02%.

Asset Quality

The Company continues to pursue its approach of maximizing contractual rights with individual classified customer relationships. The objective is to move non-performing or substandard credits that are not likely to become performing or passing credits in a reasonable timeframe off the balance sheet. The Company is encouraging existing classified customers to obtain financing with other lenders or enforcing its contractual rights. Management believes this strategy is in the best long-term interest of the Company. As a result of these efforts, non-accrual loans and OREO to total assets decreased 62 basis points from 1.83% at December 31, 2015 to 1.21% at December 31, 2016. Non-accrual loans, OREO and TDRs to total assets decreased $7.4 million or 99 basis points from $34.0 million or 2.98%, at December 31, 2015 to $26.6 million or 1.99%, at December 31, 2016.

Management considers classified assets to be an important measure of asset quality. Classified assets have been trending downward the last several years from a high point of greater than $81.9 million at December 31, 2011. Classified assets decreased $4.1 million or 9.5% during 2016 from $43.3 million at December 31, 2015 to $39.2 million as of December 31, 2016.

The following is a breakdown of the Company’s classified and special mention assets at December 31, 2016, 2015, 2014, 2013, and 2012, respectively:

Classified Assets and Special Mention Assets
(dollars in thousands) As of
12/31/2016
As of
12/31/2015
As of
12/31/2014
As of
12/31/2013
As of
12/31/2012
Classified loans
Substandard $30,462 $31,943 $46,735 $47,645 $48,676
Doubtful 137 861 - - -
Loss - - - - -
Total classified loans 30,599 32,804 46,735 47,645 48,676
Special mention loans - 1,642 5,460 9,246 6,092
Total classified and
special mention loans
$30,599 $34,446 $52,195 $56,891 $54,768
Classified loans 30,599 32,804 46,735 47,645 48,676
Classified securities 884 1,093 1,404 2,438 3,028
Other real estate owned 7,763 9,449 5,883 6,797 6,891
Total classified assets $39,246 $43,346 $54,022 $56,880 $58,595
As a percentage of Total Assets 2.94% 3.79% 4.99% 5.56% 5.97%
As a percentage of Risk Based Capital 26.13% 30.19% 39.30% 43.11% 59.02%

The allowance for loan losses was 0.91% of gross loans at December 31, 2016 and 0.93% at December 31, 2015. 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 four basis points from 0.75% at December 31, 2015 to 0.79% at December 31, 2016. The following is a breakdown of the Company’s general and specific allowances as a percentage of gross loans at December 31, 2016 and December 31, 2015, respectively:

(dollar in thousands)December 31,
2016
% of Gross
Loans
December 31,
2015
% of Gross
Loans
General Allowance$ 8,571 0.79% $ 6,932 0.75%
Specific Allowance 1,289 0.12% 1,608 0.18%
Total Allowance$ 9,860 0.91% $ 8,540 0.93%

The historical loss experience factor is tracked over various time horizons for each portfolio segment. The historical loss experience factor’s impact on the general component of the allowance 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.

Years Ended December 31,
(dollars in thousands) 2016 2015 2014 2013 2012 2011
Average loans $ 988,288 $ 874,186 $ 819,381 $ 741,369 $ 719,798 $ 671,242
Net charge-offs 1,039 1,374 2,309 1,049 1,937 4,101
Net charge-offs
to average loans
0.11% 0.16% 0.28% 0.14% 0.27% 0.61%

About The Community Financial Corporation - The Company is the bank holding company for Community Bank of the Chesapeake. Headquartered in Waldorf, Maryland, Community Bank of the Chesapeake is a full-service commercial bank, with assets over $1.3 billion. Through its 12 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 litigation that may arise, market disruptions and other effects of terrorist activities and the matters described in “Item 1A Risk Factors” in the Company’s Annual Report on Form 10-K for the Year Ended December 31, 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 December 31, 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
CONSOLIDATED STATEMENTS OF INCOME
Unaudited
Three Months Ended December 31, Years Ended December 31,
(dollars in thousands, except per share amounts ) 2016 2015 2016 2015
Interest and Dividend Income
Loans, including fees $11,744 $10,500 $44,919 $41,386
Interest and dividends on investment securities 835 705 3,108 2,473
Interest on deposits with banks 5 3 20 14
Total Interest and Dividend Income 12,584 11,208 48,047 43,873
Interest Expense
Deposits 1,210 1,054 4,695 4,152
Short-term borrowings 73 11 196 37
Long-term debt 828 795 3,251 3,156
Total Interest Expense 2,111 1,860 8,142 7,345
Net Interest Income 10,473 9,348 39,905 36,528
Provision for loan losses 670 362 2,359 1,433
Net Interest Income After Provision For Loan Losses 9,803 8,986 37,546 35,095
Noninterest Income
Loan appraisal, credit, and miscellaneous charges 66 106 289 315
Gain on sale of asset 8 - 12 19
Net gains (losses) on sale of OREO 4 - (436) (20)
Net gains (losses) on sale of investment securities (8) 5 31 4
Loss on premises and equipment held for sale - - - (426)
Income from bank owned life insurance 196 199 789 815
Service charges 625 599 2,675 2,488
Gain on sale of loans held for sale - - - 104
Total Noninterest Income 891 909 3,360 3,299
Noninterest Expense
Salary and employee benefits 4,193 4,148 16,810 16,366
Occupancy expense 666 593 2,488 2,427
Advertising 138 133 647 583
Data processing expense 589 544 2,267 2,044
Professional fees 455 403 1,568 1,323
Depreciation of furniture, fixtures, and equipment 204 195 812 810
Telephone communications 41 47 174 188
Office supplies 31 49 136 157
FDIC Insurance 97 214 739 799
OREO valuation allowance and expenses 252 377 861 1,059
Other 650 853 2,657 2,662
Total Noninterest Expense 7,316 7,556 29,159 28,418
Income before income taxes 3,378 2,339 11,747 9,976
Income tax expense 1,356 811 4,416 3,633
Net Income $2,022 $1,528 $7,331 $6,343
Preferred stock dividends - - - 23
Net Income Available to Common Stockholders $2,022 $1,528 $7,331 $6,320
Earnings Per Common Share
Basic $0.44 $0.33 $1.60 $1.36
Diluted $0.44 $0.33 $1.59 $1.35
Cash dividends paid per common share $0.10 $0.10 $0.40 $0.40


THE COMMUNITY FINANCIAL CORPORATION
AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME
UNAUDITED
For the Three Months Ended December 31, For the Years Ended December 31,
2016 2015 2016 2015
Average Average Average Average
Average Yield/ Average Yield/ Average Yield/ Average Yield/
dollars in thousandsBalance Interest Cost Balance Interest Cost Balance Interest Cost Balance Interest Cost
Assets
Interest-earning assets:
Loan portfolio$ 1,049,998 $ 11,744 4.47% $ 888,799 $ 10,500 4.73% $ 988,288 $ 44,919 4.55% $ 874,186 $ 41,386 4.73%
Investment securities, federal funds
sold and interest-bearing deposits 163,548 840 2.05% 148,181 708 1.91% 157,173 3,128 1.99% 139,256 2,487 1.79%
Total Interest-Earning Assets 1,213,546 12,584 4.15% 1,036,980 11,208 4.32% 1,145,461 48,047 4.19% 1,013,442 43,873 4.33%
Cash and cash equivalents 12,725 12,466 11,858 12,192
Other assets 71,458 67,990 72,151 67,272
Total Assets$1,297,729 $1,117,436 $1,229,470 $1,092,906
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Savings$ 50,631 $ 7 0.06% $ 46,829 $ 12 0.10% $ 48,878 $ 39 0.08% $ 44,963 $ 45 0.10%
Interest-bearing demand and money
market accounts 408,823 291 0.28% 337,753 244 0.29% 380,592 1,128 0.30% 322,717 904 0.28%
Certificates of deposit 415,251 912 0.88% 375,271 799 0.85% 409,621 3,528 0.86% 378,179 3,203 0.85%
Long-term debt 65,564 373 2.28% 61,980 355 2.29% 60,503 1,456 2.41% 68,924 1,557 2.26%
Short-term debt 58,658 73 0.50% 18,797 11 0.23% 39,802 196 0.49% 13,463 37 0.27%
Subordinated Notes 23,000 360 6.26% 23,000 359 6.24% 23,000 1,438 6.25% 20,732 1,290 6.22%
Guaranteed preferred beneficial interest
in junior subordinated debentures 12,000 95 3.17% 12,000 80 2.67% 12,000 357 2.98% 12,000 309 2.58%
Total Interest-Bearing Liabilities 1,033,927 2,111 0.82% 875,630 1,860 0.85% 974,396 8,142 0.84% 860,978 7,345 0.85%
Noninterest-bearing demand deposits 148,327 130,811 142,116 120,527
Other liabilities 10,230 10,211 9,561 9,244
Stockholders' equity 105,245 100,784 103,397 102,157
Total Liabilities and Stockholders' Equity$ 1,297,729 $ 1,117,436 $ 1,229,470 $ 1,092,906
Net interest income $10,473 $9,348 $39,905 $36,528
Interest rate spread 3.33% 3.47% 3.35% 3.48%
Net yield on interest-earning assets 3.45% 3.61% 3.48% 3.60%
Ratio of average interest-earning assets
to average interest bearing liabilities 117.37% 118.43% 117.56% 117.71%
Cost of funds 0.71% 0.74% 0.73% 0.75%
Cost of deposits 0.47% 0.47% 0.48% 0.48%
Cost of debt 2.26% 2.78% 2.55% 2.77%
Note: Loan average balance includes non-accrual loans. There are no tax equivalency adjustments.


THE COMMUNITY FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 2016 December 31, 2015
(dollars in thousands) (Unaudited)
Assets
Cash and due from banks $9,948 $9,059
Federal funds sold - 225
Interest-bearing deposits with banks 1,315 1,855
Securities available for sale (AFS), at fair value 53,033 35,116
Securities held to maturity (HTM), at amortized cost 109,247 109,420
Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) stock - at cost 7,235 6,931
Loans receivable - net of allowance for loan losses of $9,860 and $8,540 1,079,519 909,200
Premises and equipment, net 22,550 20,156
Premises and equipment held for sale - 2,000
Other real estate owned (OREO) 7,763 9,449
Accrued interest receivable 3,979 3,218
Investment in bank owned life insurance 28,625 27,836
Other assets 11,043 8,867
Total Assets $1,334,257 $1,143,332
Liabilities and Stockholders' Equity
Liabilities
Deposits
Non-interest-bearing deposits $144,877 $142,771
Interest-bearing deposits 893,948 764,128
Total deposits 1,038,825 906,899
Short-term borrowings 79,000 36,000
Long-term debt 65,559 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 11,447 10,033
Total Liabilities 1,229,831 1,043,549
Stockholders' Equity
Common stock - par value $.01; authorized - 15,000,000 shares;
issued 4,633,868 and 4,645,429 shares, respectively 46 46
Additional paid in capital 47,377 46,809
Retained earnings 58,100 53,495
Accumulated other comprehensive loss (928) (251)
Unearned ESOP shares (169) (316)
Total Stockholders' Equity 104,426 99,783
Total Liabilities and Stockholders' Equity $1,334,257 $1,143,332


THE COMMUNITY FINANCIAL CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA (Unaudited)
Three Months Ended (Unaudited) Years Ended
December 31, 2016 December 31, 2015 December 31, 2016
December 31, 2015
KEY OPERATING RATIOS
Return on average assets 0.62% 0.55% 0.60% 0.58%
Return on average common equity 7.68 6.06 7.09 6.33
Return on average total equity 7.68 6.06 7.09 6.21
Average total equity to average total assets 8.11 9.02 8.41 9.35
Interest rate spread 3.33 3.47 3.35 3.48
Net interest margin 3.45 3.61 3.48 3.60
Cost of funds 0.71 0.74 0.73 0.75
Cost of deposits 0.47 0.47 0.48 0.48
Cost of debt 2.26 2.78 2.55 2.77
Efficiency ratio 64.38 73.67 67.40 71.35
Non-interest expense to average assets 2.26 2.70 2.37 2.60
Net operating expense to average assets 1.98 2.38 2.10 2.30
Avg. int-earning assets to avg. int-bearing liabilities 117.37 118.43 117.56 117.71
Net charge-offs to average loans 0.18 0.09 0.11 0.16
COMMON SHARE DATA
Basic net income per common share $ 0.44 $ 0.33 $ 1.60 $ 1.36
Diluted net income per common share 0.44 0.33 1.59 1.35
Cash dividends paid per common share 0.10 0.10 0.40 0.40
Weighted average common shares outstanding:
Basic 4,574,707 4,605,033 4,587,598 4,639,700
Diluted 4,606,676 4,642,081 4,617,870 4,676,748
(Unaudited)
(dollars in thousands, except per share amounts) December 31, 2016 December 31, 2015 $ Change
% Change
ASSET QUALITY
Total assets $ 1,334,257 $ 1,143,332 $ 190,925 16.7%
Gross loans 1,088,982 918,894 170,088 18.5
Classified Assets 39,246 43,346 (4,100) (9.5)
Allowance for loan losses 9,860 8,540 1,320 15.5
Past due loans (PDLs) (31 to 89 days) 1,034 948 86 9.1
Nonperforming loans (NPLs) (>=90 days) 7,705 10,740 (3,035) (28.3)
Non-accrual loans (a) 8,374 11,433 (3,059) (26.8)
Accruing troubled debt restructures (TDRs) (b) 10,448 13,133 (2,685) (20.4)
Other real estate owned (OREO) 7,763 9,449 (1,686) (17.8)
Non-accrual loans, OREO and TDRs $ 26,585 $ 34,015 $ (7,430) (21.8)
ASSET QUALITY RATIOS
Classified assets to total assets 2.94% 3.79%
Classified assets to risk-based capital 26.13 30.19
Allowance for loan losses to total loans 0.91 0.93
Allowance for loan losses to nonperforming loans 127.97 79.52
Past due loans (PDLs) to total loans 0.09 0.10
Nonperforming loans (NPLs) to total loans 0.71 1.17
Loan delinquency (PDLs + NPLs) to total loans 0.80 1.27
Non-accrual loans to total loans 0.77 1.24
Non-accrual loans and TDRs to total loans 1.73 2.67
Non-accrual loans and OREO to total assets 1.21 1.83
Non-accrual loans, OREO and TDRs to total assets 1.99 2.98
COMMON SHARE DATA
Book value per common share $ 22.54 $ 21.48
Common shares outstanding at end of period 4,633,868 4,645,429
OTHER DATA
Number of:
Full-time equivalent employees 162 171
Branches 12 12
Loan Production Offices 5 5
REGULATORY CAPITAL RATIOS
Tier 1 capital to average assets 9.02 10.01%
Tier 1 common capital to risk-weighted assets 9.54 10.16
Tier 1 capital to risk-weighted assets 10.62 11.38
Total risk-based capital to risk-weighted assets 13.60 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 December 31, 2016 and 2015, the Bank had total TDRs of $15.1 million and $18.6 million, respectively, with four and three TDR relationships totaling $4.7 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
SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED)
Three Months Ended
December 31, September 30, June 30, March 31, December 31,
(dollars in thousands, except per share amounts ) 2016 2016 2016 2016 2015
Interest and Dividend Income
Loans, including fees $ 11,744 $ 11,460 $ 11,170 $ 10,545 $ 10,500
Interest and dividends on securities 835 758 752 763 705
Interest on deposits with banks 5 5 6 4 3
Total Interest and Dividend Income 12,584 12,223 11,928 11,312 11,208
Interest Expense
Deposits 1,210 1,209 1,182 1,095 1,054
Short-term borrowings 73 36 49 38 11
Long-term debt 828 834 802 786 795
Total Interest Expense 2,111 2,079 2,033 1,919 1,860
Net Interest Income (NII) 10,473 10,144 9,895 9,393 9,348
Provision for loan losses 670 698 564 427 362
NII After Provision For Loan Losses 9,803 9,446 9,331 8,966 8,986
Noninterest Income
Loan appraisal, credit, and misc. charges 66 60 102 61 106
Gain on sale of asset 8 - 4 - -
Net (losses) gains on sale of OREO 4 3 (448) 5 -
Net (losses) gains on sale of investment securities (8) - 39 - 5
Income from bank owned life insurance 196 199 198 196 199
Service charges 625 580 882 588 599
Total Noninterest Income 891 842 777 850 909
Noninterest Expense
Salary and employee benefits 4,193 4,268 4,197 4,152 4,148
Occupancy expense 666 597 636 589 593
Advertising 138 290 156 63 133
Data processing expense 589 544 580 554 544
Professional fees 455 308 380 425 403
Depr.of furniture, fixtures, and equipment 204 206 206 196 195
Telephone communications 41 43 46 44 47
Office supplies 31 33 29 43 49
FDIC Insurance 97 215 184 243 214
OREO valuation allowance and expenses 252 203 105 301 377
Other 650 604 773 630 853
Total Noninterest Expense 7,316 7,311 7,292 7,240 7,556
Income before income taxes 3,378 2,977 2,816 2,576 2,339
Income tax expense 1,356 1,014 1,078 968 811
Net Income Available to Common Stockholders $ 2,022 $ 1,963 $ 1,738 $ 1,608 $ 1,528
THE COMMUNITY FINANCIAL CORPORATION
SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED) - Continued
At Or For The Three Months Ended
December 31, September 30, June 30, March 31, December 31,
(dollars in thousands, except per share amounts ) 2016 2016 2016 2016 2015
KEY OPERATING RATIOS
Return on average assets 0.62% 0.63% 0.57% 0.56% 0.55%
Return on average common equity 7.68 7.48 6.79 6.37 6.06
Return on average total equity 7.68 7.48 6.79 6.37 6.06
Average total equity to average total assets 8.11 8.37 8.46 8.74 9.02
Interest rate spread 3.33 3.34 3.40 3.37 3.47
Net interest margin 3.45 3.47 3.52 3.50 3.61
Cost of funds 0.71 0.73 0.74 0.73 0.74
Cost of deposits 0.47 0.48 0.49 0.47 0.47
Cost of debt 2.26 2.63 2.66 2.71 2.78
Efficiency ratio 64.38 66.55 68.33 70.68 73.67
Non-interest expense to average assets 2.26 2.33 2.41 2.51 2.70
Net operating expense to average assets 1.98 2.06 2.15 2.21 2.38
Avg. int-earning assets to avg. int-bearing liabilities 117.37 117.49 117.61 117.79 118.43
Net charge-offs to average loans 0.18 0.06 0.02 0.16 0.09
COMMON SHARE DATA
Basic net income per common share $ 0.44 $ 0.43 $ 0.38 $ 0.35 $ 0.33
Diluted net income per common share 0.44 0.42 0.38 0.35 0.33
Cash dividends paid per common share 0.10 0.10 0.10 0.10 0.10
Weighted average common shares outstanding:
Basic 4,574,707 4,590,644 4,590,444 4,594,683 4,605,033
Diluted 4,606,676 4,622,579 4,617,794 4,624,603 4,642,081
ASSET QUALITY
Total assets $ 1,334,257 $ 1,281,874 $ 1,233,401 $ 1,176,913 $ 1,143,332
Gross loans 1,088,982 1,051,419 1,005,068 945,144 918,894
Classified Assets 39,246 40,234 41,370 44,512 43,346
Allowance for loan losses 9,860 9,663 9,106 8,591 8,540
Past due loans (PDLs) (31 to 89 days) 1,034 723 821 983 948
Nonperforming loans (NPLs) (>=90 days) 7,705 7,778 9,540 9,703 10,740
Non-accrual loans 8,374 8,455 10,224 10,392 11,433
Accruing troubled debt restructures (TDRs) 10,448 10,595 10,878 12,327 13,133
Other real estate owned (OREO) 7,763 8,620 8,460 11,038 9,449
Non-accrual loans, OREO and TDRs $ 26,585 $ 27,670 $ 29,562 $ 33,757 $ 34,015
ASSET QUALITY RATIOS
Classified assets to total assets 2.94% 3.14% 3.35% 3.78% 3.79%
Classified assets to risk-based capital 26.13 27.08 28.25 30.79 30.19
Allowance for loan losses to total loans 0.91 0.92 0.91 0.91 0.93
Allowance for loan losses to nonperforming loans 127.97 124.24 95.45 88.54 79.52
Past due loans (PDLs) to total loans 0.09 0.07 0.08 0.10 0.10
Nonperforming loans (NPLs) to total loans 0.71 0.74 0.95 1.03 1.17
Loan delinquency (PDLs + NPLs) to total loans 0.80 0.81 1.03 1.13 1.27
Non-accrual loans to total loans 0.77 0.80 1.02 1.10 1.24
Non-accrual loans and TDRs to total loans 1.73 1.81 2.10 2.40 2.67
Non-accrual loans and OREO to total assets 1.21 1.33 1.51 1.82 1.83
Non-accrual loans, OREO and TDRs to total assets 1.99 2.16 2.40 2.87 2.98
COMMON SHARE DATA
Book value per common share $ 22.54 $ 22.33 $ 22.01 $ 21.70 $ 21.48
Common shares outstanding at end of period 4,633,868 4,656,989 4,651,486 4,652,292 4,645,429
OTHER DATA
Number of:
Full-time equivalent employees 162 166 167 168 171
Branches 12 12 12 12 12
Loan Production Offices 5 5 5 5 5
REGULATORY CAPITAL RATIOS
Tier 1 capital to average assets 9.02% 9.22% 9.43% 9.77% 10.01%
Tier 1 common capital to risk-weighted assets 9.54 9.75 10.01 9.96 10.16
Tier 1 capital to risk-weighted assets 10.62 10.87 11.18 11.14 11.38
Total risk-based capital to risk-weighted assets 13.60 13.94 14.32 14.26 14.58


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

Source:Community Financial Corporation