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The Community Financial Corporation Reports a 46% Increase in Net Income for Second Quarter and First Six Months of 2017

WALDORF, Md., July 18, 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 second quarter and six months ended June 30, 2017. Net income was $2.5 million for the three months ended June 30, 2017, an increase of $805,000 or 46.3%, compared to $1.7 million for the three months ended June 30, 2016. Earnings per common share (diluted) at $0.55 increased $0.17 from $0.38 per common share (diluted) for the three months ended June 30, 2016. The Company’s returns on average assets and common stockholders’ equity for the second quarter of 2017 were 0.74% and 9.36%, respectively, compared to 0.57% and 6.79%, respectively, for the second quarter of 2016.

Net income was $4.9 million for the six months ended June 30, 2017, an increase of $1.6 million or 46.0%, compared to $3.3 million for the six months ended June 30, 2016. Earnings per common share (diluted) for the first six months of 2017 were $1.05 increasing $0.33 from $0.72 per common share (diluted) for the six months ended June 30, 2016. The Company’s returns on average assets and common stockholders’ equity, for the six months ended June 30, 2017 were 0.72% and 9.07%, respectively, compared to 0.57% and 6.58%, respectively, for first six months of 2016.

The Company continued to improve quarterly results, recording its seventh consecutive quarter of earnings growth. Net income of $2.5 million for the three months ended June 30, 2017 increased $201,000 compared to $2.3 million of net income for the first quarter of 2017. Earnings per common share (diluted) at $0.55 increased $0.04 from $0.51 per common share (diluted) for the three months ended March 31, 2017. The Company’s returns on average assets and common stockholders’ equity for the second quarter of 2017 were 0.74% and 9.36%, respectively, compared to 0.70% and 8.78%, respectively, for the first quarter of 2017. The increase in net income from the first quarter was the result of increased net interest income and noninterest income of $259,000 and 177,000, respectively, partially offset by increased noninterest expense of $151,000 and higher income tax expense due to higher pretax earnings. The Company’s loan portfolio increased to $1,142.0 million at June 30, 2017, an increase of $28.3 million or 10.2% annualized, compared to first quarter ending loan balances of $1,113.7 million.

“I am pleased that The Community Financial Corporation’s management team continues to execute the Company’s strategic plan. Two years of interest-earning asset growth, expense control and improving asset quality should position the Company to further increase operating leverage during 2017,” stated Michael L. Middleton, Chairman of the Board.

“Loans have grown $53.0 million or 9.7% annualized to $1,142.0 million at June 30, 2017 since the end of 2016. We are on pace to grow 8% to 10% in 2017,” stated William J. Pasenelli, Chief Executive Officer and Vice-Chairman of the Board. “Our loan growth increased top-line revenue and has been a major factor in improving profitability. I am equally satisfied with our accomplishments in improving credit quality and controlling expense growth. Non-accrual loans and other real estate owned (“OREO”) as a percentage of assets have declined every quarter since the fourth quarter of 2015, decreasing from 1.83% of assets to 0.98% at June 30, 2017. During the same timeframe, the Company’s efficiency ratio1 improved 11 percentage points to 63% for the second quarter of 2017 from 74% for the three months ended December 31, 2015.”

The Company previously announced the closing of its Central Park Fredericksburg branch. The branch is expected to close in the third quarter. This location will continue to serve as a loan production office and the branch closure will not have a material effect on operations.

“Changing customer banking preferences, along with the opening of our downtown Fredericksburg branch, precipitated the decision to close the Central Park branch,” stated James F. Di Misa, Chief Operating Officer and Executive Vice President. “Current branch employees will fill open positions.”

Net interest margin for the three months ended June 30, 2017 was stable compared to the first quarter of 2017, decreasing one basis point from 3.40% to 3.39%, respectively. The decrease was expected and attributable to a slightly faster rise in the Company’s cost of funds compared to increased yields for loans and investments. The increase in cost of funds to 0.79% for the three months ended June 30, 2017 from 0.74% for the first quarter 2017 was primarily due to rising short-term wholesale funding rates during the first six months of 2017. Overall loan and investment yields increased during the second quarter from 4.12% during the first quarter of 2017 to 4.16% for the three months ended June 30, 2017. The increase in interest-earning yields was due to larger dollar growth in the commercial real estate portfolio compared to the residential first mortgage portfolio, the scheduled repricing of loans and the purchase of securities and the production of commercial real estate loans in a rising rate environment.

Net Interest Income

Net interest income increased 10.5% or $1.0 million to $10.9 million for the three months ended June 30, 2017 compared to $9.9 million for the three months ended June 30, 2016. Net interest margin at 3.39% for the three months ended June 30, 2017 decreased 13 basis points from 3.52% for the three months ended June 30, 2016. Average interest-earning assets were $1,288.2 million for the second quarter of 2017, an increase of $164.6 million or 14.6%, compared to $1,123.6 million for the same quarter of 2016.

Net interest income increased 12.0% or $2.3 million to $21.6 million for the six months ended June 30, 2017 compared to $19.3 million for the six months ended June 30, 2016. Net interest margin at 3.40% for the six months ended June 30, 2017 decreased 11 basis points from 3.51% for the six months ended June 30, 2016. Average interest-earning assets were $1,271.5 million for the first six months of 2017, an increase of $172.8 million or 15.7%, compared to $1,098.7 million for the first six months of 2016.

Net interest margin declined during the first half of 2017, primarily due to reduced yields on loans and a slight increase in cost of funds. Yields on the loan portfolio decreased from 4.61% for the six months ended June 30, 2016 to 4.44% for six months ended June 30, 2017. Yields were reduced compared to the prior year due to the Bank’s increased investment in residential mortgages during 2016 and the low intermediate term interest rates that were depressed for most of 2016. The ten year U.S. Treasury rate was as low as 1.37% (July 8, 2016).

During the second quarter of 2017, loan yields began to rise compared to the first quarter of 2017, influenced by increases in the federal funds target rate (1.25% as of June 15, 2017) and loan growth in higher yielding portfolios. The Company plans to continue to slow the growth of residential first mortgages in favor of increasing commercial loan growth for the balance of the year.

A small increase in the cost of funds slightly impacted net interest margin for the comparable periods. The cost of funds increased two basis points to 0.76% for the six months ended June 30, 2017 compared to 0.74% for the six months ended June 30, 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 six months ended June 30, 2017 increased $71.2 million, or 13.2%, to $612.4 million compared to $541.2 million for the comparable period in 2016. Average transaction accounts as a percentage of total deposits increased from 57.2% for the six months ended June 30, 2016 to 58.1% for the six months ended June 30, 2017.

Wholesale and time based funding rates are typically more sensitive to rising interest rates than transactional deposits. Compared to the three months ended June 30, 2016, interest rates for the second quarter of 2017 increased by nine basis points on certificates of deposit, while interest-bearing transactional deposits increased by two basis points. The Company’s Federal Home Loan Bank (“FHLB”) short-term borrowings and guaranteed preferred beneficial interest in junior subordinated debentures (“TRUPS’), increased by 59 basis points and 47 basis points, respectively, for the comparable periods. The Company’s ability to increase transaction deposits faster than wholesale funding during 2017 could mitigate possible downward pressure on net interest margin that has occurred during the first half of 2017.

Noninterest Income and Noninterest Expense

Noninterest income increased by $275,000 to $1.1 million for the three months ended June 30, 2017 compared to $777,000 for the three months ended June 30, 2016. Noninterest income increased by $300,000 to $1.9 million for the six months June 30, 2017 compared to $1.6 million for the six months June 30, 2016. The increase in income for the three and six months was due to OREO losses recognized in 2016 not recognized in 2017 and an increase in securities gains partially offset by a reduction in service charge income.

Noninterest expense averaged just below $7.3 million per quarter during 2016. The Company focused during the prior year on controlling the growth of expenses by streamlining internal processes and reviewing vendor relationships. These efforts resulted in a reduction in nine FTEs, from 171 employees to 162 employees, during the year ended December 31, 2016. The Company’s strategy to create operating leverage through continued asset growth combined with controlling the growth in expenses will continue during 2017.

For the three months ended June 30, 2017, noninterest expense increased 3.3%, or $238,000, to $7.5 million from $7.3 million for the comparable period in 2016. The Company’s efficiency ratio for the three months ended June 30, 2017 and 2016 was 62.83% and 68.33%, respectively. The Company’s net operating expense ratio2 as a percentage of average assets for the three months ended June 30, 2017 and 2016 was 1.89% and 2.15%, respectively. These ratios have improved in each successive quarter since the three months ended December 31, 2015. The following is a summary breakdown of noninterest expense:

Three Months Ended June 30,
(dollars in thousands) 2017 2016 $ Change % Change
Compensation and Benefits $4,198 $4,197 $1 0.0%
OREO Valuation Allowance and Expenses 145 105 40 38.1%
Operating Expenses 3,187 2,990 197 6.6%
Total Noninterest Expense $7,530 $7,292 $238 3.3%

For the six months ended June 30, 2017, noninterest expense increased 2.6%, or $377,000, to $14.9 million from $14.5 million for the comparable period in 2016. The first six months of 2017 the Company controlled growth in compensation and benefits expense at 1.9%. Total growth in compensation and benefit costs was 2.7% and 3.2%, respectively for the years ended December 31, 2016 and 2015. The Company’s efficiency ratio for the six months ended June 30, 2017 and 2016 was 63.35% and 69.48%, respectively. The Company’s net operating expense ratio as a percentage of average assets for the six months ended June 30, 2017 and 2016 was 1.91% and 2.18%, respectively. The following is a summary breakdown of noninterest expense:

Six Months Ended June 30,
(dollars in thousands) 2017 2016 $ Change % Change
Compensation and Benefits $8,511 $8,349 $162 1.9%
OREO Valuation Allowance and Expenses 340 406 (66) (16.3%)
Operating Expenses 6,058 5,777 281 4.9%
Total Noninterest Expense $14,909 $14,532 $377 2.6%

Balance Sheet and Asset Quality

Balance Sheet

Total assets at June 30, 2017 were $1.39 billion, an increase of $58.4 million or 8.8% annualized growth, compared to total assets of $1.33 billion at December 31, 2016. The increase in total assets was primarily attributable to growth in loans. Net loans increased $52.9 million, or 9.8% annualized growth, from $1,079.5 million at December 31, 2016 to $1,132.4 million at June 30, 2017, principally due to increases in loans secured by commercial real estate and residential first mortgages.

The following is a breakdown of the Company’s loan portfolio at June 30, 2017 and December 31, 2016:

(dollars in thousands) June 30, 2017 % December 31, 2016 %
Commercial real estate $713,789 62.49% $667,105 61.25%
Residential first mortgages 181,386 15.88% 171,004 15.70%
Residential rentals 103,361 9.05% 101,897 9.36%
Construction and land development 32,603 2.85% 36,934 3.39%
Home equity and second mortgages 20,847 1.83% 21,399 1.97%
Commercial loans 55,023 4.82% 50,484 4.64%
Consumer loans 412 0.04% 422 0.04%
Commercial equipment 34,589 3.03% 39,737 3.65%
1,142,010 100.00% 1,088,982 100.00%
Less:
Deferred loan fees and premiums (853) -0.06% (397) -0.04%
Allowance for loan losses 10,434 0.89% 9,860 0.91%
9,581 9,463
$1,132,429 $1,079,519

Deposits increased by 9.4% annualized, or $49.0 million, to $1,087.8 million at June 30, 2017 compared to $1,038.8 million at December 31, 2016. The Company uses both traditional and reciprocal brokered deposits. Traditional brokered deposits at June 30, 2017 and December 31, 2016 were $146.9 million and $131.0 million, respectively. Reciprocal brokered deposits are used to maximize FDIC insurance available to our customers. Reciprocal brokered deposits at June 30, 2017 and December 31, 2016 were $95.6 million and $70.7 million, respectively. The following is a breakdown of the Company’s deposit portfolio at June 30, 2017 and December 31, 2016:

June 30, 2017 December 31, 2016
(dollars in thousands) Balance % Balance %
Noninterest-bearing demand $154,962 14.25% $144,877 13.95%
Interest-bearing:
Demand 190,674 17.53% 162,823 15.67%
Money market deposits 238,822 21.95% 248,049 23.88%
Savings 54,361 5.00% 50,284 4.84%
Certificates of deposit 448,987 41.27% 432,792 41.66%
Total interest-bearing 932,844 85.75% 893,948 86.05%
Total Deposits $1,087,806 100.00% $1,038,825 100.00%
Transaction accounts $ 638,819 58.73% $ 606,033 58.34%

FHLB long-term debt and short-term borrowings increased $9.5 million from $144.6 million at December 31, 2016 to $154.1 million at June 30, 2017. The Company uses brokered deposits and other wholesale funding to supplement funding when loan growth exceeds core deposit growth and for asset-liability management purposes.

During the six months ended June 30, 2017, stockholders’ equity increased $4.9 million to $109.3 million. The increase in stockholders’ equity was due to net income of $4.9 million, a current year decrease in accumulated other comprehensive loss of $439,000 and net stock related activities related to stock-based compensation of $444,000. These increases to capital were partially offset by quarterly common dividends paid of $901,000. Common stockholders' equity of $109.3 million at June 30, 2017 resulted in a book value of $23.51 per common share compared to $22.54 at December 31, 2016. The Company remains well-capitalized at June 30, 2017 with a Tier 1 capital to average assets ratio of 8.85%.

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 customers with classified credits to obtain financing with other lenders or enforcing its contractual rights. Management believes this strategy is in the best long-term interest of the Company. As a result of these efforts, non-accrual loans and OREO to total assets have decreased from 1.83% at December 31, 2015, to 1.21% at December 31, 2016, and to 0.98% at June 30, 2017. Non-accrual loans, OREO and TDRs to total assets decreased from 2.98% at December 31, 2015, to 1.99%, at December 31, 2016, and to 1.71% at June 30, 2017.

Management considers classified assets to be an important measure of asset quality. Classified assets have been trending downward the last several years. The following is a breakdown of the Company’s classified and special mention assets at June 30, 2017, March 31, 2017 and December 31, 2016, 2015, 2014 and 2013, respectively:

Classified Assets and Special Mention Assets
(dollars in thousands) As of
06/30/2017
As of
03/31/2017
As of
12/31/2016
As of
12/31/2015
As of
12/31/2014
As of
12/31/2013
Classified loans
Substandard $25,519 $28,920 $30,463 $31,943 $46,735 $47,645
Doubtful - - 137 861 - -
Loss - - - - - -
Total classified loans 25,519 28,920 30,600 32,804 46,735 47,645
Special mention loans 1,357 1,374 - 1,642 5,460 9,246
Total classified and special mention loans $26,876 $30,294 $30,600 $34,446 $52,195 $56,891
Classified loans 25,519 28,920 30,600 32,804 46,735 47,645
Classified securities 740 791 883 1,093 1,404 2,438
Other real estate owned 9,154 6,747 7,763 9,449 5,883 6,797
Total classified assets $35,413 $36,458 $39,246 $43,346 $54,022 $56,880
As a percentage of Total Assets 2.54% 2.69% 2.94% 3.79% 4.99% 5.56%
As a percentage of Risk Based Capital 22.81% 23.91% 26.13% 30.19% 39.30% 43.11%

The allowance for loan losses was 0.91% of gross loans at June 30, 2017 and December 31, 2016. Management’s determination of the adequacy of the allowance is based on a periodic evaluation of the portfolio with consideration given to: overall loss experience; current economic conditions; size, growth and composition of the loan portfolio; financial condition of the borrowers; current appraised values of underlying collateral and other relevant factors that, in management’s judgment, warrant recognition in determining an adequate allowance. Improvements to baseline charge-off factors for the periods used to evaluate the adequacy of the allowance as well as improvements in some qualitative factors, such as reductions in classified assets and delinquency, were offset by increases in other qualitative factors, such as concentration to capital factors. The specific allowance is based on management’s estimate of realizable value for particular loans. Management believes that the allowance is adequate.

The following is a breakdown of the Company’s general and specific allowances as a percentage of gross loans at June 30, 2017 and December 31, 2016, respectively:

(dollar in thousands) June 30, 2017
% of Gross
Loans
December 31, 2016 % of Gross
Loans
General Allowance $8,958 0.78% $8,571 0.79%
Specific Allowance 1,476 0.13% 1,289 0.12%
Total Allowance $10,434 0.91% $9,860 0.91%

The historical loss experience factor is tracked over various time horizons for each portfolio segment. The following table provides net charge-offs as a percentage of average loans for the three and six months ended June 30, 2017 and 2016, respectively, and a five-year trend:

Three Months Ended June 30, Six Months Ended June 30, Years Ended December 31,
(dollars in thousands) 2017 2016 2017 2016 2016 2015 2014 2013 2012
Average loans $1,112,329 $966,701 $1,097,448 $942,880 $988,288 $874,186 $819,381 $741,369 $719,798
Net charge-offs 51 49 182 425 1,039 1,374 2,309 1,049 1,937
Net charge-offs to average loans 0.02% 0.02% 0.03% 0.09% 0.11% 0.16% 0.28% 0.14% 0.27%

About The Community Financial Corporation - The Company is the bank holding company for Community Bank of the Chesapeake. Headquartered in Waldorf, Maryland, Community Bank of the Chesapeake is a full-service commercial bank, with assets over $1.3 billion. Through its 12 branches and five commercial lending centers, Community Bank of the Chesapeake offers a broad range of financial products and services to individuals and businesses. The Company’s branches are located at its main office in Waldorf, Maryland, and 11 branch offices in Waldorf, Bryans Road, Dunkirk, Leonardtown, La Plata, Charlotte Hall, Prince Frederick, Lusby and California, Maryland; and Central Park and downtown Fredericksburg, Virginia.

Forward-looking Statements - This news release contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements can generally be identified by the fact that they do not relate strictly to historical or current facts. They often include words like “believe,” “expect,” “anticipate,” “estimate” and “intend” or future or conditional verbs such as “will,” “would,” “should,” “could” or “may.” Statements in this release that are not strictly historical are forward-looking and are based upon current expectations that may differ materially from actual results. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those anticipated by the statements made herein. These risks and uncertainties involve general economic trends, changes in interest rates; loss of deposits and loan demand to other financial institutions; substantial changes in financial markets; changes in real estate value and the real estate market; regulatory changes; the possibility of unforeseen events affecting the industry generally; the uncertainties associated with newly developed or acquired operations; the outcome of litigation that may arise; market disruptions and other effects of terrorist activities; and the matters described in “Item 1A Risk Factors” in the Company’s Annual Report on Form 10-K for the Year Ended December 31, 2016. The Company undertakes no obligation to update these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unforeseen events, except as required under the rules and regulations of the Securities and Exchange Commission.

Data is unaudited as of June 30, 2017. This selected information should be read in conjunction with the financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.

THE COMMUNITY FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended June 30, Six Months Ended June 30,
(dollars in thousands, except per share amounts ) 2017 2016 2017 2016
Interest and Dividend Income
Loans, including fees $12,410 $11,170 $24,380 $21,715
Interest and dividends on investment securities 973 752 1,919 1,515
Interest on deposits with banks 12 6 18 10
Total Interest and Dividend Income 13,395 11,928 26,317 23,240
Interest Expense
Deposits 1,403 1,182 2,671 2,277
Short-term borrowings 283 49 430 87
Long-term debt 776 802 1,609 1,588
Total Interest Expense 2,462 2,033 4,710 3,952
Net Interest Income 10,933 9,895 21,607 19,288
Provision for loan losses 376 564 756 991
Net Interest Income After Provision For Loan Losses 10,557 9,331 20,851 18,297
Noninterest Income
Loan appraisal, credit, and miscellaneous charges 9 102 56 163
Gain on sale of asset 47 4 47 4
Net gains (losses) on sale of OREO 9 (448) 36 (443)
Net gains on sale of investment securities 133 39 133 39
Income from bank owned life insurance 194 198 385 394
Service charges 660 882 1,270 1,470
Total Noninterest Income 1,052 777 1,927 1,627
Noninterest Expense
Salary and employee benefits 4,198 4,197 8,511 8,349
Occupancy expense 658 636 1,311 1,225
Advertising 140 156 248 219
Data processing expense 634 580 1,211 1,134
Professional fees 598 380 935 805
Depreciation of furniture, fixtures, and equipment 204 206 403 402
Telephone communications 45 46 96 90
Office supplies 28 29 60 72
FDIC Insurance 161 184 327 427
OREO valuation allowance and expenses 145 105 340 406
Other 719 773 1,467 1,403
Total Noninterest Expense 7,530 7,292 14,909 14,532
Income before income taxes 4,079 2,816 7,869 5,392
Income tax expense 1,536 1,078 2,984 2,046
Net Income $2,543 $1,738 $4,885 $3,346
Earnings Per Common Share
Basic $0.55 $0.38 $1.05 $0.73
Diluted $0.55 $0.38 $1.05 $0.72
Cash dividends paid per common share $0.10 $0.10 $0.20 $0.20

THE COMMUNITY FINANCIAL CORPORATION
AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME
UNAUDITED
For the Three Months Ended June 30, For the Six Months Ended June 30,
2017 2016 2017 2016
Average Average Average Average
Average Yield/ Average Yield/ Average Yield/ Average Yield/
dollars in thousands Balance Interest Cost Balance Interest Cost Balance Interest Cost Balance Interest Cost
Assets
Interest-earning assets:
Loan portfolio $1,112,329 $12,410 4.46% $966,701 $11,170 4.62% $1,097,448 $24,380 4.44% $942,880 $21,715 4.61%
Investment securities, federal funds
sold and interest-bearing deposits 175,903 985 2.24% 156,893 758 1.93% 174,027 1,937 2.23% 155,837 1,525 1.96%
Total Interest-Earning Assets 1,288,232 13,395 4.16% 1,123,594 11,928 4.25% 1,271,475 26,317 4.14% 1,098,717 23,240 4.23%
Cash and cash equivalents 14,102 12,206 12,703 10,759
Other assets 71,498 73,877 71,744 72,604
Total Assets $ 1,373,832 $ 1,209,677 $ 1,355,922 $ 1,182,080
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Savings $53,522 $7 0.05% $47,888 $14 0.12% $52,476 $13 0.05% $47,242 $26 0.11%
Interest-bearing demand and money
market accounts 412,326 352 0.34% 365,966 286 0.31% 412,202 660 0.32% 356,402 540 0.30%
Certificates of deposit 443,627 1,044 0.94% 413,952 883 0.85% 442,086 1,998 0.90% 405,227 1,711 0.84%
Long-term debt 59,490 313 2.10% 58,835 352 2.39% 60,679 677 2.23% 55,380 697 2.52%
Short-term debt 96,385 283 1.17% 33,754 49 0.58% 87,182 430 0.99% 34,272 87 0.51%
Subordinated Notes 23,000 359 6.24% 23,000 359 6.24% 23,000 719 6.25% 23,000 719 6.25%
Guaranteed preferred beneficial interest
in junior subordinated debentures 12,000 104 3.47% 12,000 90 3.00% 12,000 213 3.55% 12,000 172 2.87%
Total Interest-Bearing Liabilities 1,100,350 2,462 0.89% 955,395 2,033 0.85% 1,089,625 4,710 0.86% 933,523 3,952 0.85%
Noninterest-bearing demand deposits 153,176 142,182 147,713 137,602
Other liabilities 11,586 9,724 10,849 9,295
Stockholders' equity 108,720 102,376 107,735 101,660
Total Liabilities and Stockholders' Equity $ 1,373,832 $ 1,209,677 $ 1,355,922 $ 1,182,080
Net interest income $10,933 $9,895 $21,607 $19,288
Interest rate spread 3.27% 3.40% 3.28% 3.38%
Net yield on interest-earning assets 3.39% 3.52% 3.40% 3.51%
Ratio of average interest-earning assets
to average interest bearing liabilities 117.07% 117.61% 116.69% 117.70%
Cost of funds 0.79% 0.74% 0.76% 0.74%
Cost of deposits 0.53% 0.49% 0.51% 0.48%
Cost of debt 2.22% 2.66% 2.23% 2.69%
Note: Loan average balance includes non-accrual loans. There are no tax equivalency adjustments.

THE COMMUNITY FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, 2017
(dollars in thousands) (Unaudited) December 31, 2016
Assets
Cash and due from banks $14,982 $9,948
Interest-bearing deposits with banks 1,338 1,315
Securities available for sale (AFS), at fair value 54,288 53,033
Securities held to maturity (HTM), at amortized cost 106,842 109,247
Federal Home Loan Bank (FHLB) stock - at cost 7,745 7,235
Loans receivable - net of allowance for loan losses of $10,434 and $9,860 1,132,429 1,079,519
Premises and equipment, net 22,042 22,205
Premises and equipment held for sale - 345
Other real estate owned (OREO) 9,154 7,763
Accrued interest receivable 4,212 3,979
Investment in bank owned life insurance 29,011 28,625
Other assets 10,645 11,043
Total Assets $1,392,688 $1,334,257
Liabilities and Stockholders' Equity
Liabilities
Deposits
Non-interest-bearing deposits $154,962 $144,877
Interest-bearing deposits 932,844 893,948
Total deposits 1,087,806 1,038,825
Short-term borrowings 88,500 79,000
Long-term debt 65,529 65,559
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 6,560 11,447
Total Liabilities 1,283,395 1,229,831
Stockholders' Equity
Common stock - par value $.01; authorized - 15,000,000 shares;
issued 4,648,199 and 4,633,868 shares, respectively 46 46
Additional paid in capital 47,847 47,377
Retained earnings 62,058 58,100
Accumulated other comprehensive loss (489) (928)
Unearned ESOP shares (169) (169)
Total Stockholders' Equity 109,293 104,426
Total Liabilities and Stockholders' Equity $1,392,688 $1,334,257


THE COMMUNITY FINANCIAL CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA
Three Months Ended (Unaudited)
Six Months Ended (Unaudited)
June 30, 2017
June 30, 2016
June 30, 2017
June 30, 2016
KEY OPERATING RATIOS
Return on average assets 0.74% 0.57% 0.72 % 0.57 %
Return on average common equity 9.36 6.79 9.07 6.58
Average total equity to average total assets 7.91 8.46 7.95 8.60
Interest rate spread 3.27 3.40 3.28 3.38
Net interest margin 3.39 3.52 3.40 3.51
Cost of funds 0.79 0.74 0.76 0.74
Cost of deposits 0.53 0.49 0.51 0.48
Cost of debt 2.22 2.66 2.23 2.69
Efficiency ratio 62.83 68.33 63.35 69.48
Non-interest expense to average assets 2.19 2.41 2.20 2.46
Net operating expense to average assets 1.89 2.15 1.91 2.18
Avg. int-earning assets to avg. int-bearing liabilities 117.07 117.61 116.69 117.70
Net charge-offs to average loans 0.02 0.02 0.03 0.09
COMMON SHARE DATA
Basic net income per common share $0.55 $0.38 $1.05 $0.73
Diluted net income per common share 0.55 0.38 1.05 0.72
Cash dividends paid per common share 0.10 0.10 0.20 0.20
Weighted average common shares outstanding:
Basic 4,632,911 4,590,444 4,630,647 4,592,563
Diluted 4,635,483 4,617,794 4,633,720 4,621,199
(Unaudited)
(dollars in thousands, except per share amounts) June 30, 2017 December 31, 2016 $ Change % Change
ASSET QUALITY
Total assets $1,392,688 $1,334,257 $58,431 4.4 %
Gross loans 1,142,010 1,088,982 53,028 4.9
Classified Assets 35,413 39,246 (3,833) (9.8)
Allowance for loan losses 10,434 9,860 574 5.8
Past due loans (PDLs) (31 to 89 days) 1,081 1,034 47 4.5
Nonperforming loans (NPLs) (>=90 days) 3,782 7,705 (3,923) (50.9)
Non-accrual loans (a) 4,442 8,374 (3,932) (47.0)
Accruing troubled debt restructures (TDRs) (b) 10,228 10,448 (220) (2.1)
Other real estate owned (OREO) 9,154 7,763 1,391 17.9
Non-accrual loans, OREO and TDRs $23,824 $26,585 $(2,761) (10.4)
ASSET QUALITY RATIOS
Classified assets to total assets 2.54% 2.94%
Classified assets to risk-based capital 22.81 26.13
Allowance for loan losses to total loans 0.91 0.91
Allowance for loan losses to nonperforming loans 275.89 127.97
Past due loans (PDLs) to total loans 0.09 0.09
Nonperforming loans (NPLs) to total loans 0.33 0.71
Loan delinquency (PDLs + NPLs) to total loans 0.43 0.80
Non-accrual loans to total loans 0.39 0.77
Non-accrual loans and TDRs to total loans 1.28 1.73
Non-accrual loans and OREO to total assets 0.98 1.21
Non-accrual loans, OREO and TDRs to total assets 1.71 1.99
COMMON SHARE DATA
Book value per common share $23.51 $22.54
Common shares outstanding at end of period 4,648,199 4,633,868
OTHER DATA
Full-time equivalent employees 165 162
Branches 12 12
Loan Production Offices 5 5
REGULATORY CAPITAL RATIOS
Tier 1 capital to average assets 8.85% 9.02%
Tier 1 common capital to risk-weighted assets 9.70 9.54
Tier 1 capital to risk-weighted assets 10.77 10.62
Total risk-based capital to risk-weighted assets 13.72 13.60
(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.
(b) At June 30, 2017 and December 31, 2016, the Bank had total TDRs of $12.0 million and $15.1 million, respectively, with $1.8 million and $4.7 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
June 30, March 31, December 31, September 30, June 30,
(dollars in thousands, except per share amounts) 2017 2017 2016 2016 2016
Interest and Dividend Income
Loans, including fees $12,410 $11,970 $11,744 $11,460 $11,170
Interest and dividends on securities 973 946 835 758 752
Interest on deposits with banks 12 6 5 5 6
Total Interest and Dividend Income 13,395 12,922 12,584 12,223 11,928
Interest Expense
Deposits 1,403 1,269 1,210 1,209 1,182
Short-term borrowings 283 147 73 36 49
Long-term debt 776 832 828 834 802
Total Interest Expense 2,462 2,248 2,111 2,079 2,033
Net Interest Income (NII) 10,933 10,674 10,473 10,144 9,895
Provision for loan losses 376 380 670 698 564
NII After Provision For Loan Losses 10,557 10,294 9,803 9,446 9,331
Noninterest Income
Loan appraisal, credit, and misc. charges 9 47 66 60 102
Gain on sale of asset 47 - 8 - 4
Net gains (losses) on sale of OREO 9 27 4 3 (448)
Net gains (losses) on sale of investment securities 133 - (8) - 39
Income from bank owned life insurance 194 191 196 199 198
Service charges 660 610 625 580 882
Total Noninterest Income 1,052 875 891 842 777
Noninterest Expense
Salary and employee benefits 4,198 4,313 4,193 4,268 4,197
Occupancy expense 658 653 666 597 636
Advertising 140 108 138 290 156
Data processing expense 634 577 589 544 580
Professional fees 598 337 455 308 380
Depr.of furniture, fixtures, and equipment 204 199 204 206 206
Telephone communications 45 51 41 43 46
Office supplies 28 32 31 33 29
FDIC Insurance 161 166 97 215 184
OREO valuation allowance and expenses 145 195 252 203 105
Other 719 748 650 604 773
Total Noninterest Expense 7,530 7,379 7,316 7,311 7,292
Income before income taxes 4,079 3,790 3,378 2,977 2,816
Income tax expense 1,536 1,448 1,356 1,014 1,078
Net Income $2,543 $2,342 $2,022 $1,963 $1,738


THE COMMUNITY FINANCIAL CORPORATION
SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED) - Continued
Three Months Ended
June 30, March 31, December 31, September 30, June 30,
(dollars in thousands, except per share amounts) 2017 2017 2016 2016 2016
KEY OPERATING RATIOS
Return on average assets 0.74% 0.70% 0.62% 0.63% 0.57%
Return on average common equity 9.36 8.78 7.68 7.48 6.79
Average total equity to average total assets 7.91 7.98 8.11 8.37 8.46
Interest rate spread 3.27 3.29 3.33 3.34 3.40
Net interest margin 3.39 3.40 3.45 3.47 3.52
Cost of funds 0.79 0.74 0.71 0.73 0.74
Cost of deposits 0.53 0.48 0.47 0.48 0.49
Cost of debt 2.22 2.24 2.26 2.63 2.66
Efficiency ratio 62.83 63.89 64.38 66.55 68.33
Non-interest expense to average assets 2.19 2.21 2.26 2.33 2.41
Net operating expense to average assets 1.89 1.94 1.98 2.06 2.15
Avg. int-earning assets to avg. int-bearing liabilities 117.07 116.29 117.37 117.49 117.61
Net charge-offs to average loans 0.02 0.05 0.18 0.06 0.02
COMMON SHARE DATA
Basic net income per common share $0.55 $0.51 $0.44 $0.43 $0.38
Diluted net income per common share 0.55 0.51 0.44 0.42 0.38
Cash dividends paid per common share 0.10 0.10 0.10 0.10 0.10
Weighted average common shares outstanding:
Basic 4,632,911 4,628,357 4,574,707 4,590,644 4,590,444
Diluted 4,635,483 4,630,398 4,606,676 4,622,579 4,617,794
ASSET QUALITY
Total assets $1,392,688 $1,356,073 $1,334,257 $1,281,874 $1,233,401
Gross loans 1,142,010 1,113,742 1,088,982 1,051,419 1,005,068
Classified Assets 35,413 36,458 39,246 40,234 41,370
Allowance for loan losses 10,434 10,109 9,860 9,663 9,106
Past due loans (PDLs) (31 to 89 days) 1,081 231 1,034 723 821
Nonperforming loans (NPLs) (>=90 days) 3,782 7,168 7,705 7,778 9,540
Non-accrual loans 4,442 7,830 8,374 8,455 10,224
Accruing troubled debt restructures (TDRs) 10,228 10,264 10,448 10,595 10,878
Other real estate owned (OREO) 9,154 6,747 7,763 8,620 8,460
Non-accrual loans, OREO and TDRs $23,824 $24,841 $26,585 $27,670 $29,562
ASSET QUALITY RATIOS
Classified assets to total assets 2.54% 2.69% 2.94% 3.14% 3.35%
Classified assets to risk-based capital 22.81 23.91 26.13 27.08 28.25
Allowance for loan losses to total loans 0.91 0.91 0.91 0.92 0.91
Allowance for loan losses to nonperforming loans 275.89 141.03 127.97 124.24 95.45
Past due loans (PDLs) to total loans 0.09 0.02 0.09 0.07 0.08
Nonperforming loans (NPLs) to total loans 0.33 0.64 0.71 0.74 0.95
Loan delinquency (PDLs + NPLs) to total loans 0.43 0.66 0.80 0.81 1.03
Non-accrual loans to total loans 0.39 0.70 0.77 0.80 1.02
Non-accrual loans and TDRs to total loans 1.28 1.62 1.73 1.81 2.10
Non-accrual loans and OREO to total assets 0.98 1.07 1.21 1.33 1.51
Non-accrual loans, OREO and TDRs to total assets 1.71 1.83 1.99 2.16 2.40
COMMON SHARE DATA
Book value per common share $23.51 $22.96 $22.54 $22.33 $22.01
Common shares outstanding at end of period 4,648,199 4,641,342 4,633,868 4,656,989 4,651,486
OTHER DATA
Full-time equivalent employees 165 165 162 166 167
Branches 12 12 12 12 12
Loan Production Offices 5 5 5 5 5
REGULATORY CAPITAL RATIOS
Tier 1 capital to average assets 8.85% 8.91% 9.02% 9.22% 9.43%
Tier 1 common capital to risk-weighted assets 9.70 9.62 9.54 9.75 10.01
Tier 1 capital to risk-weighted assets 10.77 10.69 10.62 10.87 11.18
Total risk-based capital to risk-weighted assets 13.72 13.66 13.60 13.94 14.32


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

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


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

Source:Community Financial Corporation