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The Community Financial Corporation Reports Operating Results for the Three and Six Months Ended June 30, 2018

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WALDORF, Md., July 26, 2018 (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, 2018.

The Company reported net income for the three months ended June 30, 2018 ("2018Q2") of $2.3 million or diluted earnings per share of $0.42 compared to net income of $2.5 million or $0.55 per diluted share for the three months ended June 30, 2017 ("2017Q2"). The second quarter results included merger and acquisition costs net of tax of $546,000 and $227,000 for the comparative quarters. The impact of merger and acquisition costs resulted in a reduction to quarterly earnings per share of approximately $0.10 for 2018Q2 and $0.05 for 2017Q2. The Company's return on average assets ("ROAA") and return on average common equity ("ROACE") were 0.59% and 6.34% in 2018Q2 compared to 0.74% and 9.36% in 2017Q2. The Company completed the acquisition of $200 million County First Bank ("County First") on January 1, 2018, increasing the Company's asset size to just under $1.6 billion. As planned, the Company closed four of the five acquired County First branches during May of 2018. The La Plata downtown branch remains open. The second quarter and first six months of 2018 results reflect temporary increases in operating expenses to support the merger with County First Bank. The closure of four branches and reductions in headcount during the second quarter are expected to positively impact the Company's operating expense run rate in the second half of 2018.    

Net income for the six months ended June 30, 2018 ("2018YTDQ2") was $3.6 million or $0.64 per diluted share compared to net income of $4.9 million or $1.05 per diluted share for the six months ended June 30, 2017 ("2017YTDQ2"). The first six months results included merger and acquisition costs net of tax of $2.7 million and $237,000 for the comparative periods. The impact of merger and acquisition costs resulted in a reduction to six month earnings per share of approximately $0.48 for 2018YTDQ2 and $0.06 for 2017YTDQ2. The Company's ROAA and ROACE were 0.59% and 6.34% in 2018YTDQ2 compared to 0.74% and 9.36% in 2017YTDQ2.

"We are very pleased with our team's execution of the County First Bank acquisition.  Expenses related to the merger have been managed below original estimates," stated William J. Pasenelli, Chief Executive Officer and Vice-Chairman of the Board. "These activities have been highlighted by the timely absorption of County First staff into open positions and the liquidation of branches ahead of schedule.  Account retention for both deposit and loan relationships has been very strong. Our success in growing transaction deposits in 2018 since the merger date is due in large part to our team working with our new customers to provide them with product offerings previously unavailable to them at County First." 

"I am very enthusiastic about our current year growth in deposits. Overall deposits have increased $217.6 million since December 31, 2017 to over $1.3 billion at June 30, 2018. Retail deposits increased $265.4 million or 26.9%, while traditional brokered deposits decreased $47.8 million. Overall time deposits have decreased $5.1 million in the first six months of the year. The increase in retail deposits allowed us to pay down borrowings and wholesale funding $123.8 million. Wholesale funding at 8.7% of assets is at its lowest point since 2012," stated James M. Burke, President and Chief Risk Officer. "I am optimistic that our increased liquidity and deposit composition changes will make us less sensitive to rising interest rates and increase profitability."  

 Highlights at and for the three and six months ended June 30, 2018 include:

  • As planned, the Company closed four of the five acquired County First branches during May of 2018. The La Plata downtown branch remains open. Two branches were sold during 2018Q2.
     
  • Gross loans increased 12.2% or $140.4 million from $1,151.1 million at December 31, 2017 ("2017Q4") to $1,291.5 million at 2018Q2, primarily due to the County First acquisition. Gross loans increased $10.7 million (3.3% annualized) from $1,280.8 million at March 31, 2018 ("2018Q1") to $1,291.5 million at 2018Q2.    
     
  • Transaction accounts increased $69.9 million, or 8.7% (34.8% annualized) to $877.4 million at 2018Q2 from $807.5 million at 2018Q1. Transaction deposit accounts increased to 66% of deposits at 2018Q2 from 63% of deposits at 2018Q1 and 59% of deposits at 2017Q4.
     
  • Total deposits have increased $217.6 million to $1.3 billion in the first six months of 2018, which included an increase in transaction accounts of $222.7 million and a decrease in time deposits of $5.1 million.
     
  • Wholesale funding as a percentage of assets decreased to 8.7% at 2018Q2 from 12.5% at 2018Q1 and 18.7% at 2017Q4. Wholesale funding includes traditional brokered deposits and Federal Home Loan Bank ("FHLB") advances. Wholesale funding decreased $123.8 million or 47% to $138.2 million at 2018Q2 from $261.9 million at 2017Q4.
     
  • Liquidity has improved with the increase in transaction deposits and decrease in wholesale funding. The Company's net loan to deposit ratio has decreased from 103.1% at 2017Q4 to 96.7% at 2018Q2.
     
  • Classified loans as a percentage of assets decreased 84 basis points and 74 basis points, respectively, from 3.58% at December 31, 2017 to 2.74% at June 30, 2018 and 2.84% at March 31, 2018.
     
  • Non-accrual loans, OREO and TDRs to total assets increased 35 basis points and five basis points, respectively, from 1.71% at December 31, 2017 to 2.06% at June 30, 2018 and 1.76% at March 31, 2018. The increase in 2018Q2 was primarily the result of one well-secured classified relationship of $10.3 million that was placed on non-accrual during the second quarter of 2018, which resulted in the reversal of approximately $120,000 of interest income.
     
  • Tier 1 leverage ratio increased to 9.46% at 2018Q2 compared to 8.79% at December 31, 2017.
     
  • Net income increased $1.1 million to $2.3 million, or $.0.42 per share, compared to $1.2 million, or $0.22 per share, in the prior quarter. The Company's ROAA and ROACE were 0.59% and 6.34% in 2018Q2 compared to 0.31% and 3.33% in the prior quarter. The increase in earnings was primarily the result of decreased merger and acquisition costs compared to the prior quarter as the integration of the County First transaction nears completion. The Company does not expect significant merger and acquisition costs related to the acquisition in the third and fourth quarters of 2018.  
     
  • Operating net income1 decreased $475,000 to $2.9 million, or $0.52 per share, compared to $3.4 million, or $0.61 per share, in the prior quarter. The Company's operating ROAA and operating ROACE were 0.73% and 7.82% in 2018Q2 compared to 0.85% and 9.15% in the prior quarter. The reduction in earnings was primarily the result of decreased net interest income of $479,000 due to lower average loan balances, higher deposit costs, non-accrual interest reversals and lower interest accretion. Second quarter interest income included non-accrual interest reversals of $117,000 and a reduction in accretion interest of $169,000 compared to the previous quarter.
     
  • Net interest margin decreased 13 basis points from 3.54% in 2018Q1 to 3.41% in 2018Q2. Net interest income decreased $479,000 to $12.4 million in 2018Q2 compared to $12.9 million in 2018Q1. Net interest margin would have been reduced 10 basis points in 2018Q1 to 3.44% and one basis point in 2018Q2 to 3.40% if the impacts of accretion interest and nonaccrual interest were excluded.
     
  • Noninterest expense of $9.7 million in 2018Q2 decreased $2.0 million compared to $11.7 million in the prior quarter, primarily due to a reduction in County First acquisition costs. Merger and acquisition costs of $741,000 were recorded in 2018Q2 compared to $2.9 million in 2018Q1. In addition, the first and second quarters carried additional costs related to supporting five operating County First branches. The Company's expense run rate is expected to be positively impacted in the third quarter due to the branch closures and reduced employee headcount. The Company will continue to carry some additional noninterest expense in the third and fourth quarters until duplicate vendors and processes are discontinued.
     
  • Noninterest expense of $9.0 million in 2018Q2, excluding merger and acquisition costs, increased $200,000 compared to $8.8 million in the prior quarter. These costs reflected management's expected expense run rate of between $8.9 and $9.1 million for the first two quarters of 2018. The Company's expected expense run rate for the balance of 2018 is $8.4 million to $8.6 million per quarter.
     
  • The GAAP efficiency ratio was 73.23% in 2018Q2 compared to 83.81% in 2018Q1. The Non-GAAP (or "operating") efficiency ratio2, which excludes merger and acquisition costs, OREO gains and losses and other non-core activities, was 65.51% in 2018Q2 compared to 62.39% in 2018Q1. The increase in the Non-GAAP efficiency ratio was due primarily to a decrease in net interest income.

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1 The Company defines operating net income as net income before merger and acquisition costs and the one-time deferred tax adjustment recorded for Tax Cuts and Jobs Act in the three months ended December 31, 2017.  Operating earnings per share, operating return on average assets and operating return on average common equity is calculated using adjusted operating net income. See Non-GAAP reconciliation schedules.

2 The Company maintains GAAP and Non-GAAP measures for net operating expenses and noninterest expenses to calculate Non-GAAP ratios. Adjusted net operating expense and adjusted noninterest expense exclude merger and acquisition costs, OREO gains and losses and expenses, and gains and losses on the sale of investments and other assets not considered part of recurring operations. See Reconciliation of GAAP and Non-GAAP financial measures for the calculation of the below ratios:

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.

 

Loan yields on repricing and new loans began to rise in the second half of 2017, influenced by increases in the federal funds target rate and loan growth in higher yielding portfolios. End of period projected loan yields have increased since the third quarter of 2017. The following table is based on contractual interest rates and does not include the amortization of deferred costs and fees or assumptions regarding non-accrual interest:

                   
Weighted End of Period Contractual Interest Rates              
    June 30, 2018   March 31, 2018   December 31, 2017   September 30, 2017  
(dollars in thousands)   EOP Contractual
Interest rate
  EOP Contractual
Interest rate
  EOP Contractual
Interest rate
  EOP Contractual
Interest rate
 
                   
Commercial real estate   4.55 %   4.50 %   4.43 %   4.38 %  
Residential first mortgages   3.91 %   3.88 %   3.88 %   3.87 %  
Residential rentals   4.76 %   4.72 %   4.63 %   4.60 %  
Construction and land development   5.22 %   5.11 %   4.99 %   4.88 %  
Home equity and second mortgages   5.14 %   4.83 %   4.77 %   4.54 %  
Commercial loans   5.53 %   5.34 %   5.01 %   4.89 %  
Consumer loans   6.83 %   6.64 %   7.57 %   7.47 %  
Commercial equipment    4.47 %   4.43 %   4.41 %   4.49 %  
Total Loans   4.56 %   4.50 %   4.41 %   4.37 %  
                           

Balance Sheet

Total assets increased $180.3 million, or 12.8%, to $1.6 billion at 2018Q2 compared to total assets of $1.4 billion at 2017Q4 primarily as a result of the acquisition of County First. Cash and cash equivalents increased $5.0 million, or 32.2%, to $20.4 million and total securities increased $16.9 million, or 10.1%, to $184.5 million. Gross loans increased 12.2% or $140.4 million from $1,151.1 million at 2017Q4 to $1,291.5 million at 2018Q2, primarily due to the merger. 

The acquisition of County First led to a slight shift in the composition of the loan portfolios during 2018 compared to 2017Q4. Regulatory concentrations for non-owner occupied commercial real estate and construction decreased from 309.6% and 65.5% at 2017Q4 to 294.8% and 65.1% at 2018Q2. The following is a breakdown of the Company's loan portfolios at June 30, 2018 and December 31, 2017:

            *          
BY LOAN TYPE   June 30, 2018   %   December 31, 2017   %   $ Change % Change
                       
Commercial real estate   $   828,445   64.20 %   $   727,314   63.25 %   $   101,131   13.90 %
Residential first mortgages       163,090   12.64 %       170,374   14.81 %       (7,284 ) -4.28 %
Residential rentals       127,469   9.88 %       110,228   9.58 %       17,241   15.64 %
Construction and land development       28,647   2.22 %       27,871   2.42 %       776   2.78 %
Home equity and second mortgages       37,026   2.87 %       21,351   1.86 %       15,675   73.42 %
Commercial loans       57,519   4.46 %       56,417   4.91 %       1,102   1.95 %
Consumer loans       801   0.06 %       573   0.05 %       228   39.79 %
Commercial equipment        47,418   3.67 %       35,916   3.12 %       11,502   32.02 %
Gross loans       1,290,415   100.00 %       1,150,044   100.00 %       140,371   12.21 %
Net deferred costs (fees)       1,122   0.09 %       1,086   0.09 %       36   3.31 %
Total loans, net of deferred costs   $   1,291,537       $   1,151,130       $   140,407   12.20 %
                       
* Derived from audited financial statements. 
                   

"The growth of transaction deposits and the corresponding decrease in wholesale funding has increased available liquidity and decreased our sensitivity to interest rate changes. This could have a positive impact on net operating revenues with more organic loan growth," stated Todd L. Capitani, Chief Financial Officer and Executive Vice President. "The addition of County First loans and organic growth have increased loans 12.2% or $140.4 million to $1,291.5 million at June 30, 2018.  The Company is encouraged by a strong loan pipeline of $122 million, but loan growth of the Company's non-acquired loan portfolios at a 3.7% annualized rate for the first six months of 2018 was below our expectations."

The non-acquired portfolios increased $21.4 million or 3.7% annualized from $1,150.0 million at December 31, 2017 to $1.171.4 million at June 30, 2018. The Bank's higher yielding commercial real estate portfolio has grown $29.1 million at an 8.0% annualized rate during the first six months of 2018, which has been partially offset by a net decrease in other loan portfolios of $7.8 million. The following is a breakdown of the Company's non-acquired loan portfolios at June 30, 2018 and December 31, 2017:

                               
Non-Acquired Loan Portfolios                              
(dollars in thousands)   June 30, 2018   %   December 31, 2017   %   $ Change
    Annualized
% Change
                               
Commercial real estate   $ 756,451   64.57 %   $ 727,314   63.25 %   $ 29,137     8.01 %
Residential first mortgages       162,621   13.88 %       170,374   14.81 %       (7,753 )   -9.10 %
Residential rentals       106,967   9.13 %       110,228   9.58 %       (3,261 )   -5.92 %
Construction and land development       27,611   2.36 %       27,871   2.42 %       (260 )   -1.87 %
Home equity and second mortgages       21,334   1.82 %       21,351   1.86 %       (17 )   -0.16 %
Commercial loans       53,853   4.60 %       56,417   4.91 %       (2,564 )   -9.09 %
Consumer loans       564   0.05 %       573   0.05 %       (9 )   -3.14 %
Commercial equipment        42,018   3.59 %       35,916   3.12 %       6,102     33.98 %
    $ 1,171,419   100.00 %   $ 1,150,044   100.00 %   $ 21,375     3.72 %
 

In terms of accounting designations, compared to 2017Q4: (i) non-acquired loans, which include certain renewed and/or restructured acquired performing loans that are re-designated as non-acquired, increased $21.4 million, or 1.9%, to $1,171.4 million; (ii) acquired performing loans were $115.2 million; and (iii) purchase credit impaired ("PCI") loans were $3.8 million. At 2018Q2 performing acquired loans, which totaled $115.2 million, included a $2.2 million net acquisition accounting fair market value adjustment, representing a 1.84% "mark;" and PCI loans which totaled $3.8 million, included a $671,000 adjustment, representing a 14.89% "mark."

Total deposits increased $217.7 million, or 19.7%, to $1,323.9 million at 2018Q2, compared to $1,106.2 million at 2017Q4. Noninterest bearing demand deposits increased $54.4 million, or 34.0%, to $214.2 million (16.2% of total deposits). The Company uses both traditional and reciprocal brokered deposits. Traditional brokered deposits were $71.3 million at 2018Q2 compared to $118.9 million at 2017Q4. Reciprocal brokered deposits are used to maximize FDIC insurance available to our customers. Reciprocal brokered deposits were $152.8 million at 2018Q2 compared to $92.9 million at 2017Q4.  Transaction deposit accounts increased $222.7 million from $654.6 million (59% of deposits) at 2017Q4 to $877.4 million (66% of deposits) at 2018Q2. The Company is optimistic that the increase in transaction deposits during the first and second quarters of 2018 will be less sensitive to rising interest rates than wholesale funding.  

FHLB long-term debt and short-term borrowings ("FHLB advances") decreased $76.0 million, or 53.2%, to $67.0 million at 2018Q2 compared to $143.0 million at 2017Q4. Wholesale funding, which includes traditional brokered deposits and FHLB advances, decreased $123.8 million from $261.9 million (18.7% of assets) at 2017Q4 to $138.2 million (8.7% of assets) at 2018Q2. Cash and the sale of securities from the County First acquisition were used to pay down debt and brokered deposits. In addition, the Company was able to further reduce wholesale funding with second quarter 2018 organic transaction deposit growth of $69.9 million. 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.

Total stockholders' equity increased $37.3 million, or 33.9%, to $147.3 million at 2018Q2 compared to $110.0 million at 2017Q4. This increase primarily resulted from the issuance of 918,526 shares of common stock, valued at $35.6 million (based on the $38.78 per share closing price), as the stock component of the merger consideration paid in the County First acquisition. In addition, stockholders' equity increased due to net income of $3.6 million and net stock related activities related to stock-based compensation of $247,000. These increases to stockholders' equity were partially offset by decreases due to common dividends paid of $1.1 million, an increase in accumulated other comprehensive losses of $991,0000 and repurchases of common stock of $67,000. The Company's ratio of tangible common equity to tangible assets increased to 8.49% at 2018Q2 from 7.82% at 2017Q43. The Company's Common Equity Tier 1 ("CET1") ratio was 10.32% at 2018Q2 compared to 9.51% at 2017Q4. The Company remains well capitalized at June 30, 2018 with a Tier 1 capital to average assets (leverage ratio) of 9.46% at 2018Q2 compared to 8.79% at 2017Q4.

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3 The Company had no intangible assets prior to January 1, 2018. Therefore, tangible common equity and tangible assets were the same as common equity and total assets.

 

Asset Quality

Non-accrual loans and OREO to total assets increased from 1.00% at 2017Q4 to 1.44% at 2018Q2.  Non-accrual loans, OREO and TDRs to total assets increased $8.6 million from $24.1 million or 1.71% at 2017Q4 to $32.7 million or 2.06% at 2018Q2. The $8.6 million increase in 2018Q2 was primarily the result of one well-secured classified relationship of $10.3 million that was placed on non-accrual during the second quarter of 2018, which resulted in the reversal of approximately $120,000 of interest income.

Classified assets decreased $6.8 million from $50.3 million at 2017Q4 to $43.5 million at 2018Q2. Management considers classified assets to be an important measure of asset quality. The following is a breakdown of the Company's classified and special mention assets at June 30, 2018, March 31, 2018 and December 31, 2017, 2016, 2015 and 2014, respectively:

                         
Classified Assets and Special Mention Assets
(dollars in thousands)   As of
06/30/2018
  As of
03/31/2018
  As of
12/31/2017
  As of
12/31/2016
  As of
12/31/2015
  As of
12/31/2014
Classified loans                        
Substandard   $   34,559     $   34,772     $   40,306     $   30,463     $   31,943     $   46,735  
Doubtful       103         -         -         137         861         -  
Loss       -         -         -         -         -         -  
Total classified loans       34,662         34,772         40,306         30,600         32,804         46,735  
Special mention loans       854         2,033         96         -         1,642         5,460  
Total classified and special mention loans   $   35,516     $   36,805     $   40,402     $   30,600     $   34,446     $   52,195  
                         
Classified loans       34,662         34,772         40,306         30,600         32,804         46,735  
Classified securities       569         612         651         883         1,093         1,404  
Other real estate owned       8,305         9,352         9,341         7,763         9,449         5,883  
Total classified assets   $   43,536     $   44,736     $   50,298     $   39,246     $   43,346     $   54,022  
                         
Total classified assets as a
  percentage of total assets
    2.74 %     2.84 %     3.58 %     2.94 %     3.79 %     4.99 %
Total classified assets as a
  percentage of Risk Based Capital
    23.88 %     24.81 %     32.10 %     26.13 %     30.19 %     39.30 %
                         

The Company reported a $400,000 provision for loan loss expense in 2018Q2 compared to $500,000 provision recorded in 2018Q1, and a provision of $376,000 in 2017Q2. Allowance for loan loss levels decreased to 0.83% of total loans at 2018Q2 compared to 0.91% at 2017Q4 due to the addition of County First loans for which no allowance was provided for in accordance with purchase accounting standards. Net charge-offs of $146,000 and $544,000 were recognized in 2018Q2 and 2018Q1, respectively, compared to net charge-offs of $51,000 and $131,000 in 2017Q2 and 2017Q1, respectively. 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 slower portfolio growth, were offset by increases in other qualitative factors. The specific allowance is based on management's estimate of realizable value for particular loans. Management believes that the allowance is adequate.

Net Income

The Company reported net income for 2018Q2 of $2.3 million or diluted earnings per share of $0.42 compared to net income of $2.5 million or $0.55 per diluted share for 2017Q2. The second quarter 2018 results included merger and acquisition costs net of tax of $546,000 and $227,000 for the comparative quarters. The impact of merger and acquisition costs resulted in a reduction to quarterly earnings per share of approximately $0.10 for 2018Q2 and $0.05 for 2017Q2. The Company's ROAA and return on average common equity ROACE were 0.59% and 6.34% in 2018Q2 compared to 0.74% and 9.36% in 2017Q2.

Net income for 2018YTDQ2 was $3.6 million or $0.64 per diluted share compared to net income of $4.9 million or $1.05 per diluted share for 2017YTDQ2. The first six months results included merger and acquisition costs net of tax of $2.7 million and $237,000 for the respective periods. The impact of merger and acquisition costs resulted in a reduction to six month earnings per share of approximately $0.48 for 2018YTDQ2 and $0.06 for 2017YTDQ2. The Company's ROAA and ROACE were 0.59% and 6.34% in 2018YTDQ2 compared to 0.74% and 9.36% in 2017YTDQ2.

The current year decrease in net income compared to the prior year was primarily due to merger-related costs, which included termination costs of County First's core processing contract as well as investment banking, legal fees and the costs of employee agreements and severance for terminations. In addition, the Company will continue to carry additional noninterest expense in the third and fourth quarters of 2018 until duplicate vendors and processes are discontinued. The increase in noninterest expense was partially offset by an increase in net interest income realized from the integrated operations of County First associated with the acquisition and from a lower effective tax rate.

The Company reported operating net income, which excludes merger-related expenses, of $2.9 million, or $0.52 per share, in 2018Q2. This compares to operating net income of $2.8 million, or $0.60 per share, in 2017Q2. 2018Q2 operating net income reflects higher noninterest expense associated with the acquisition of County, partially offset by higher net interest income.

The Company reported operating net income of $6.2 million, or $1.12 per share, in 2018YTDQ2. This compares to operating net income of $5.1 million, or $1.11 per share, in 2017YTDQ2. 2018YTDQ2 operating net income reflects higher noninterest expense associated with the acquisition of County, partially offset by higher net interest income.

Net Interest Income

Net interest income increased 13.5% or $1.5 million to $12.4 million in 2018Q2 compared to $10.9 million in 2017Q2. Net interest margin at 3.41% in 2018Q2 increased two basis points from 3.39% in 2017Q2. Average interest-earning assets were $1,457.7 million for the second quarter of 2018, an increase of $169.5 million or 13.2%, compared to $1,288.2 million for the same quarter of 2017.

Net interest income increased 17.1% or $3.7 million to $25.3 million in 2018YTDQ2 compared to $21.6 million in 2017YTDQ2. Net interest margin at 3.47% in 2018YTDQ2 increased seven basis points from 3.40% in 2017YTDQ2. Average interest-earning assets were $1,457.3 million for the first six months of 2018, an increase of $185.8 million or 14.6%, compared to $1,271.5 million for the first six months of 2017.

Net interest margin increased during the comparable periods as higher yielding assets more than offset the increased cost of funds. The increase in transaction accounts with the acquisition of County First as well as organic transaction deposit growth in the first six months of 2018 helped minimize deposit betas. Traditional brokered deposits and FHLB advances were paid down $123.8 million in the first six months of 2018 and replaced with retail deposits. Retail deposits, which include all deposits except traditional brokered deposits, increased $265.4 million or 26.9% from $987.2 million at December 31, 2017 to $1,252.6 million at June 30, 2018.

Wholesale and time-based funding rates are typically more sensitive to rising interest rates than transactional deposits. Compared to 2017Q2 and 2017YTDQ2, average interest rates in 2018 increased by 45 basis points in 2018Q2 and 39 basis points in 2018YTDQ2 to 1.39% and 1.29%, respectively, on certificates of deposit, while interest-bearing transactional deposits increased by 21 basis points and 17 basis points to 0.52% and 0.46%, respectively, for the same comparable periods. The Company's increases in transaction deposits during the last twelve months have decreased downward pressure on net interest margin. The ability to increase transaction deposits faster than wholesale funding could mitigate possible downward pressure on net interest margin in a rising rate environment.

Noninterest Income and Noninterest Expense

Noninterest income of $893,000 in 2018Q2 decreased by $159,000 compared to $1.1 million in 2017Q2. The decrease in noninterest income was primarily due to gains on the sale of investment securities sold in 2017Q2 of $133,000 and the recognition in 2018Q2 of unrealized losses on equity securities of $78,000 due to a new accounting standard effective in the first quarter of 2018 that require recognition of changes in the fair value flow through the Company's statement of income. These decreases to non-interest income were partially offset by increases in service charge income and additional income from the addition of approximately $6.3 million of Bank Owned Life Insurance acquired in the County First transaction. Noninterest income was flat at $1.9 million in 2018YTDQ2 and 2017YTDQ2.

Noninterest expenses increased $2.2 million, or 29.4%, to $9.7 million in 2018Q2 compared to $7.5 million in 2017Q2, and decreased $1.9 million, or 16.5%, compared to $11.7 million in 2018Q1. Adjusted noninterest expense, which excludes merger-related expenses and OREO related expenses increased $1.6 million, or 22.7%, to $8.8 million in 2018Q2 compared to $7.2 million in 2017Q2, and increased $86,000, or 1.0%, compared to $8.7 million in 2018Q1. Overall the increases in adjusted noninterest expenses comparing 2018Q2 to 2017Q2 were due primarily to increases in salary and employee benefits due to the addition of County First employees. Other increases from the comparable periods were to occupancy expense, data processing expense, core deposit intangible amortization and advertising expense, all of which were due primarily to the acquisition of County First. The Company closed four of the five acquired branches in May 2018. Two of the three held for sale County First branches were sold in June 2018. The closing of the branches is expected to have a positive impact on the Company's expense run rate in the second half of 2018 due to lower overhead.

The Company's GAAP efficiency ratio was 73.22% in 2018Q2 compared to 62.83% in 2017Q2 and 83.81% in 2018Q1. The operating efficiency ratio, which excludes merger and acquisition costs, OREO gains and losses and other non-core activities, was 65.51% and 60.59% and 62.39% for the same comparable periods. The increase in the operating efficiency ratio between the first and the second quarter of 2018 was primarily due to a decrease in net interest income. The Company's GAAP net operating expense ratio was 2.24% in 2018Q2 compared to 1.89% in 2017Q2 and 2.69% in 2018Q1. The Non-GAAP net operating expense ratio, which excludes merger and acquisition costs, investment gains and losses, OREO gains and losses and other non-core activities, was 1.97% and 1.83% and 1.94% for the same comparable periods. The slight increase in the Non-GAAP net operating expense ratios in 2018 reflects the costs associated with the duplication of systems and resources to integrate County First the first half of 2018. These costs are expected to decrease in the second half of 2018.  The following is a summary breakdown of noninterest expense:

                 
    Three Months Ended June 30,        
(dollars in thousands)     2018     2017   $ Change
    % Change  
Salary and employee benefits   $   5,129   $   4,198       931     22.2 %
OREO Valuation Allowance and Expenses       229       145       84     57.9 %
Merger and acquisition costs       741       238       503     211.3 %
Operating Expenses       3,642       2,949       693     23.5 %
Total Noninterest Expense   $   9,741   $   7,530   $   2,211     29.4 %
      #          
                 
    Three Months Ended        
(dollars in thousands)   June 30, 2018   March 31, 2018   $ Change
    % Change  
Salary and employee benefits   $   5,129   $   5,047   $   82     1.6 %
OREO Valuation Allowance and Expenses       229       114       115     100.9 %
Merger and acquisition costs       741       2,868       (2,127 )   (74.2 %)
Operating Expenses       3,642       3,638       4     0.1 %
Total Noninterest Expense   $   9,741   $   11,667   $   (1,926 )   (16.5 %)
                 

Noninterest expenses increased $6.5 million, or 43.6%, to $21.4 million in 2018YTDQ2 compared to $14.9 million in 2017YTDQ2. Adjusted noninterest expense, which excludes merger-related expenses and OREO related expenses increased $3.1 million, or 21.7%, to $17.4 million in 2018YTDQ2 compared to $14.3 million in 2017YTDQ2. Overall the increases in adjusted noninterest expenses comparing 2018YTDQ2 to 2017YTDQ2 were due primarily to increases in salary and employee benefits due to the addition of County First employees. Other increases from the comparable periods were to occupancy expense, data processing expense, core deposit intangible amortization and advertising expense, all of which were due primarily to the acquisition of County First.

The Company's GAAP efficiency ratio was 78.63% in 2018YTDQ2 compared to 63.35% in 2017YTDQ2. The operating efficiency ratio, which excludes merger and acquisition costs, OREO gains and losses and other non-core activities, was 63.92% and 61.39% for the same comparable periods. The Company's GAAP net operating expense ratio was 2.47% in 2018YTDQ2 compared to 1.91% in 2017YTDQ2. The Non-GAAP net operating expense ratio, which excludes merger and acquisition costs, investment gains and losses, OREO gains and losses and other non-core activities, was 1.95% and 1.86% for the same comparable periods. The following is a summary breakdown of noninterest expense:

                 
    Six Months Ended June 30,        
(dollars in thousands)     2018     2017   $ Change
    % Change  
Salary and employee benefits   $   10,176   $   8,511   $   1,665     19.6 %
OREO Valuation Allowance and Expenses       343       340       3     0.9 %
Merger and acquisition costs       3,609       255       3,354     1315.3 %
Operating Expenses       7,280       5,803       1,477     25.5 %
Total Noninterest Expense   $   21,408   $   14,909   $   6,499     43.6 %
                 

About The Community Financial Corporation -  Headquartered in Waldorf, MD, The Community Financial Corporation is the bank holding company for Community Bank of the Chesapeake, a full-service commercial bank with assets of approximately $1.6 billion.  Through its branch offices and commercial lending centers, Community Bank of the Chesapeake offers a broad range of financial products and services to individuals and businesses.  The Company's banking centers are located at its main office in Waldorf, Maryland, and branch offices in Waldorf, Bryans Road, Dunkirk, Leonardtown, La Plata, Charlotte Hall, Prince Frederick, Lusby and California, Maryland; and downtown Fredericksburg, Virginia. More information about Community Bank of the Chesapeake can be found at www.cbtc.com.

Use of Non-GAAP Financial Measures - Statements included in this press release include non-GAAP financial measures and should be read along with the accompanying tables, which provide a reconciliation of non-GAAP financial measures to GAAP financial measures.  The Company's management uses these non-GAAP financial measures, and believes that non-GAAP financial measures provide additional useful information that allows readers to evaluate the ongoing performance of the Company.  Non-GAAP financial measures should not be considered as an alternative to any measure of performance or financial condition as promulgated under GAAP, and investors should consider the Company's performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company.  Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the results or financial condition as reported under GAAP.

Forward-looking Statements - This news release contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements can generally be identified by the fact that they do not relate strictly to historical or current facts. They often include words like "believe," "expect," "anticipate," "estimate" and "intend" or future or conditional verbs such as "will," "would," "should," "could" or "may." Statements in this release that are not strictly historical are forward-looking and are based upon current expectations that may differ materially from actual results. These forward-looking statements include, without limitation, those relating to the Company's and Community Bank of the Chesapeake's future growth and management's outlook or expectations for revenue, assets, asset quality, profitability, business prospects, net interest margin, non-interest revenue, allowance for loan losses, the level of credit losses from lending, liquidity levels, capital levels, or other future financial or business performance strategies or expectations, and any statements of the plans and objectives of management for future operations products or services, including the expected benefits from, and/or the execution of integration plans relating to the County First acquisition; plans  and cost savings regarding branch closings or consolidation; any statement of expectation or belief; projections related to certain financial metrics; and any statement of assumptions underlying the foregoing. These forward-looking statements express management's current expectations or forecasts of future events, results and conditions, and by their nature are subject to and involve risks and uncertainties that could cause actual results to differ materially from those anticipated by the statements made herein.  Factors that might cause actual results to differ materially from those made in such statements include, but are not limited to: the synergies and other expected financial benefits from County First acquisition may not be realized within the expected time frames; costs or difficulties related to integration matters might be greater than expected; 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, 2017, and in its other Reports filed with the Securities and Exchange Commission (the "SEC"). The Company's forward-looking statements may also be subject to other risks and uncertainties, including those that it may discuss elsewhere in this news release or in its filings with the SEC, accessible on the SEC's Web site at www.sec.gov. The Company undertakes no obligation to update these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unforeseen events, except as required under the rules and regulations of the SEC.

Data is unaudited as of June 30, 2018. 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, 2017.

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

                   
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 )     2018       2017     2018       2017  
Interest and Dividend Income                  
  Loans, including fees    $   14,483     $   12,410   $   29,209     $   24,380  
  Interest and dividends on investment securities       1,211         973       2,306         1,919  
  Interest on deposits with banks       60         12       132         18  
Total Interest and Dividend Income       15,754         13,395       31,647         26,317  
                   
Interest Expense                  
  Deposits       2,405         1,404       4,361         2,671  
  Short-term borrowings       217         283       500         430  
  Long-term debt       721         775       1,485         1,609  
Total Interest Expense       3,343         2,462       6,346         4,710  
                   
Net Interest Income       12,411         10,933       25,301         21,607  
  Provision for loan losses       400         376       900         756  
Net Interest Income After Provision For Loan Losses        12,011         10,557       24,401         20,851  
                   
Noninterest Income                  
Loan appraisal, credit, and miscellaneous charges       7         9       60         56  
Gain on sale of assets       1         47       1         47  
Net gains (losses) on sale of OREO       (8 )       9       (8 )       36  
Net gains on sale of investment securities       -         133       -         133  
Unrealized gains (losses) on equity securities       (78 )       -       (78 )       -  
Income from bank owned life insurance       224         194       450         385  
Service charges       747         660       1,499         1,270  
Total Noninterest Income       893         1,052       1,924         1,927  
                   
Noninterest Expense                  
Salary and employee benefits       5,129         4,198       10,176         8,511  
Occupancy expense       739         658       1,505         1,311  
Advertising       180         140       339         248  
Data processing expense        782         634       1,465         1,211  
Professional fees       426         360       778         680  
Merger and acquisition costs       741         238       3,609         255  
Depreciation of premises and equipment       202         204       401         403  
Telephone communications       69         45       168         96  
Office supplies       41         28       81         60  
FDIC Insurance       113         161       311         327  
OREO valuation allowance and expenses       229         145       343         340  
Core deposit intangible amortization       199         -       404         -  
Other       891         719       1,828         1,467  
Total Noninterest Expense       9,741         7,530       21,408         14,909  
                   
  Income before income taxes       3,163         4,079       4,917         7,869  
  Income tax expense       828         1,536       1,361         2,984  
Net Income   $   2,335     $   2,543   $   3,556     $   4,885  
                   
Earnings Per Common Share                  
Basic    $   0.42     $   0.55   $   0.64     $   1.05  
Diluted    $   0.42     $   0.55   $   0.64     $   1.05  
Cash dividends paid per common share   $   0.10     $   0.10   $   0.20     $   0.20  
                   


                   
THE COMMUNITY FINANCIAL CORPORATION
RECONCILIATION OF NON-GAAP MEASURES 
THREE MONTHS ENDED 
                     
Reconciliation of US GAAP Net Income, Earnings Per Share (EPS), Return on Average Assets (ROAA) and Return on Average Common Equity  (ROACE) to Non-GAAP Operating Net Income, EPS, ROAA and ROACE
 
This press release, including the accompanying financial statement tables, contains financial information determined by methods other than in accordance with generally accepted accounting principles, or GAAP. This financial information includes certain operating performance measures, which exclude merger and acquisition costs and the fourth quarter 2017  income tax expense attributable to the revaluation of deferred tax assets as a result of the reduction in the corporate income tax rate under the recently enacted Tax Cuts and Jobs Act. These expenses are not considered part of recurring operations, such as "operating net income,"  "operating earnings per share," "operating return on average assets," and "operating return on average common equity." These non-GAAP measures are included because the Company believes they may provide useful supplemental information for evaluating the underlying performance trends of the Company.
                     
    (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)
(dollars in thousands, except per share amounts)   June 30, 2018   March 31, 2018   December 31, 2017   September 30, 2017   June 30, 2017
                     
                     
Net (loss) income (as reported)   $   2,335     $   1,221     $   (459 )   $   2,782     $   2,543  
Impact of  Tax Cuts and Jobs Act       -         -         2,740         -         -  
Merger and acquisition costs (net of tax)       546         2,135         230         257         227  
Non-GAAP operating net income    $   2,881     $   3,356     $   2,511     $   3,039     $   2,770  
                     
                     
Income before income taxes (as reported)   $   3,163     $   1,754     $   3,997     $   4,499     $   4,079  
Merger and acquisition costs ("M&A")       741         2,868         335         239         238  
Adjusted pretax income       3,904         4,622         4,332         4,738         4,317  
Income tax expense       1,023         1,266         1,821         1,699         1,547  
Non-GAAP operating net income    $   2,881     $   3,356     $   2,511     $   3,039     $   2,770  
                     
GAAP diluted earnings per share ("EPS")   $   0.42     $   0.22     $   (0.10 )   $   0.60     $   0.55  
Non-GAAP operating diluted EPS before M&A   $   0.52     $   0.61     $   0.54     $   0.66     $   0.60  
                     
GAAP return on average assets ("ROAA')      0.59 %     0.31 %     -0.13 %     0.80 %     0.74 %
Non-GAAP operating ROAA before M&A     0.73 %     0.85 %     0.72 %     0.87 %     0.81 %
                     
GAAP return on average common equity ("ROACE")     6.34 %     3.33 %     -1.62 %     9.99 %     9.36 %
Non-GAAP operating ROACE before M&A     7.82 %     9.15 %     8.89 %     10.92 %     10.19 %
                     
Net income (as reported)   $   2,335     $   1,221     $   (459 )   $   2,782     $   2,543  
Weighted average common shares outstanding       5,551,123         5,547,715         4,616,515         4,633,417         4,635,483  
Average assets   $   1,579,645     $   1,581,538     $   1,398,945     $   1,396,459     $   1,373,832  
Average equity       147,295         146,712         113,017         111,357         108,720  
                                         


         
THE COMMUNITY FINANCIAL CORPORATION   
RECONCILIATION OF NON-GAAP MEASURES   
SIX MONTHS ENDED   
           
Reconciliation of US GAAP Net Income, Earnings Per Share (EPS), Return on Average Assets (ROAA) and Return on Average Common Equity  (ROACE) to Non-GAAP Operating Net Income, EPS, ROAA and ROACE
 
This press release, including the accompanying financial statement tables, contains financial information determined by methods other than in accordance with generally accepted accounting principles, or GAAP. This financial information includes certain operating performance measures, which exclude merger and acquisition costs. These expenses are not considered part of recurring operations, such as "operating net income,"  "operating earnings per share," "operating return on average assets," and "operating return on average common equity." These non-GAAP measures are included because the Company believes they may provide useful supplemental information for evaluating the underlying performance trends of the Company.
           
    (Unaudited)   (Unaudited)  
(dollars in thousands, except per share amounts)   June 30, 2018   June 30, 2017  
           
           
Net (loss) income (as reported)   $   3,556     $   4,885    
Impact of  Tax Cuts and Jobs Act       -         -    
Merger and acquisition costs (net of tax)       2,681         237    
Non-GAAP operating net income    $   6,237     $   5,122    
           
           
Income before income taxes (as reported)   $   4,917     $   7,869    
Merger and acquisition costs ("M&A")       3,609         255    
Adjusted pretax income       8,526         8,124    
Income tax expense       2,289         3,002    
Non-GAAP operating net income    $   6,237     $   5,122    
           
GAAP diluted earnings per share ("EPS")   $   0.64     $   1.05    
Non-GAAP operating diluted EPS before M&A   $   1.12     $   1.11    
           
GAAP return on average assets ("ROAA')      0.45 %     0.72 %  
Non-GAAP operating ROAA before M&A     0.79 %     0.76 %  
           
GAAP return on average common equity ("ROACE")     4.84 %     9.07 %  
Non-GAAP operating ROACE before M&A     8.49 %     9.51 %  
           
Net income (as reported)   $   3,556     $   4,885    
Weighted average common shares outstanding       5,549,428         4,633,720    
Average assets   $   1,580,586     $   1,355,922    
Average equity       147,005         107,735    
                   


 
THE COMMUNITY FINANCIAL CORPORATION
AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME 
UNAUDITED
    For the Three Months Ended June 30,   For the Three Months Ended
         2018            2017       June 30, 2018   March 31, 2018
            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    $ 1,266,830   $ 14,482   4.57 %   $ 1,112,329   $ 12,410   4.46 %   $ 1,266,830   $ 14,482   4.57 %   $ 1,273,355   $ 14,726   4.63 %
Investment securities, federal funds                                                
sold and interest-bearing deposits     190,849     1,271   2.66 %     175,903     985   2.24 %     190,849     1,271   2.66 %     183,567     1,167   2.54 %
Total Interest-Earning Assets     1,457,679     15,753   4.32 %     1,288,232     13,395   4.16 %     1,457,679     15,753   4.32 %     1,456,922     15,893   4.36 %
Cash and cash equivalents     25,142             14,102             25,142             26,053        
Goodwill     10,280             -             10,280             10,145        
Core deposit intangible     3,316             -             3,316             3,479        
Other assets     83,228             71,498             83,228             84,939        
Total Assets   $    1,579,645           $    1,373,832           $ 1,579,645           $ 1,581,538        
                                                 
Liabilities and Stockholders' Equity                                                
Interest-bearing liabilities:                                                
Savings   $ 74,470   $ 13   0.07 %   $ 53,522   $ 7   0.05 %   $ 74,470   $ 13   0.07 %   $ 74,944   $ 12   0.06 %
Interest-bearing demand and money                                                
market accounts     550,872     796   0.58 %     412,326     352   0.34 %     550,872     796   0.58 %     496,995     543   0.44 %
Certificates of deposit     458,801     1,594   1.39 %     443,627     1,044   0.94 %     458,801     1,594   1.39 %     469,248     1,401   1.19 %
Long-term debt     37,560     226   2.41 %     59,490     313   2.10 %     37,560     226   2.41 %     50,377     285   2.26 %
Short-term debt     45,824     217   1.89 %     96,385     283   1.17 %     45,824     217   1.89 %     76,533     283   1.48 %
Subordinated Notes     23,000     359   6.24 %     23,000     359   6.24 %     23,000     359   6.24 %     23,000     359   6.24 %
Guaranteed preferred beneficial interest                             -     -         -     -    
in junior subordinated debentures     12,000     136   4.53 %     12,000     104   3.47 %     12,000     136   4.53 %     12,000     120   4.00 %
                                                 
Total Interest-Bearing Liabilities     1,202,527       3,341   1.11 %     1,100,350       2,462   0.89 %     1,202,527       3,341   1.11 %     1,203,097       3,003   1.00 %
                                                 
Noninterest-bearing demand deposits     216,968             153,176             216,968             219,703        
Other liabilities     12,855             11,586             12,855             12,026        
Stockholders' equity     147,295             108,720             147,295             146,712        
Total Liabilities and Stockholders' Equity   $    1,579,645           $    1,373,832           $    1,579,645           $    1,581,538        
                                                 
Net interest income       $ 12,412           $ 10,933           $ 12,412           $ 12,890    
                                                 
Interest rate spread           3.21 %           3.27 %           3.21 %           3.36 %
Net yield on interest-earning assets           3.41 %           3.39 %           3.41 %           3.54 %
Ratio of average interest-earning                                                
assets to average interest bearing                                                
liabilities           121.22 %           117.07 %           121.22 %           121.10 %
Average loans to average deposits           97.37 %           104.67 %           97.37 %           100.99 %
Average transaction deposits to total average deposits **       64.74 %           58.25 %           64.74 %           62.78 %
                                                 
Cost of funds           0.94 %           0.79 %           0.94 %           0.84 %
Cost of deposits           0.74 %           0.53 %           0.74 %           0.62 %
Cost of debt           3.17 %           2.22 %           3.17 %           2.59 %
                                                 
Note: Loan average balance includes non-accrual loans. There are no tax equivalency adjustments. There was $152,000 and $321,000 of accretion interest  for the three months ended June 30, 2018 and March 31, 2018, respectively. 
** Transaction deposits exclude time deposits. 
 


 
THE COMMUNITY FINANCIAL CORPORATION
AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME 
UNAUDITED
  For the Six Months Ended June 30,
      2018           2017    
          Average           Average
  Average       Yield/   Average       Yield/
dollars in thousands Balance   Interest   Cost   Balance   Interest   Cost
Assets                      
Interest-earning assets:                      
Loan portfolio  $ 1,270,075   $ 29,209   4.60 %   $ 1,097,448   $ 24,380   4.44 %
Investment securities, federal funds                      
sold and interest-bearing deposits   187,228     2,438   2.60 %     174,027     1,937   2.23 %
Total Interest-Earning Assets   1,457,303     31,647   4.34 %     1,271,475     26,317   4.14 %
Cash and cash equivalents   25,595             12,703        
Goodwill   10,213             -        
Core deposit intangible   3,397             -        
Other assets   84,078             71,744        
Total Assets $    1,580,586           $    1,355,922        
6                      
Liabilities and Stockholders' Equity                      
Interest-bearing liabilities:                      
Savings $ 74,706   $ 25   0.07 %   $ 52,476   $ 13   0.05 %
Interest-bearing demand and money                      
market accounts   524,082     1,339   0.51 %     412,202     660   0.32 %
Certificates of deposit   463,995     2,996   1.29 %     442,086     1,998   0.90 %
Long-term debt    43,933     510   2.32 %     60,679     677   2.23 %
Short-term debt   61,094     500   1.64 %     87,182     430   0.99 %
Subordinated Notes   23,000     719   6.25 %     23,000     719   6.25 %
Guaranteed preferred beneficial interest                       
in junior subordinated debentures   12,000     256   4.27 %     12,000     213   3.55 %
                       
Total Interest-Bearing Liabilities   1,202,810       6,345   1.06 %     1,089,625       4,710   0.86 %
                       
Noninterest-bearing demand deposits   218,327             147,713        
Other liabilities   12,444             10,849        
Stockholders' equity   147,005             107,735        
Total Liabilities and Stockholders' Equity $    1,580,586           $    1,355,922        
                       
Net interest income     $ 25,302           $ 21,607    
                       
Interest rate spread         3.28 %           3.28 %
Net yield on interest-earning assets         3.47 %           3.40 %
Ratio of average interest-earning                      
assets to average interest bearing                      
liabilities         121.16 %           116.69 %
Average loans to average deposits         99.14 %           104.08 %
Average transaction deposits to total average deposits **       63.78 %           58.08 %
                       
Cost of funds         0.89 %           0.76 %
Cost of deposits         0.68 %           0.51 %
Cost of debt         2.84 %           2.23 %
                       
Note: Loan average balance includes non-accrual loans. There are no tax equivalency adjustments. There was $473,000 of accretion interest during the six months ended June 30, 2018.
** Transaction deposits exclude time deposits. 
 


         
THE COMMUNITY FINANCIAL CORPORATION        
CONSOLIDATED BALANCE SHEETS        
    (Unaudited)   *
(dollars in thousands, except per share amounts)   June 30, 2018   December 31, 2017
Assets        
Cash and due from banks    $   16,718     $   13,315  
Interest-bearing deposits with banks       3,667         2,102  
Securities available for sale (AFS), at fair value       79,026         68,285  
Securities held to maturity (HTM), at amortized cost       100,842         99,125  
Securities carried at fair value through income       4,367         -  
Non-marketable equity securities held in other financial institutions       249         121  
Federal Home Loan Bank (FHLB) stock - at cost       4,311         7,276  
Loans receivable       1,291,537         1,151,130  
Less: allowance for loan losses       (10,725 )       (10,515 )
Net loans       1,280,812         1,140,615  
Goodwill       10,603         -  
Premises and equipment, net       22,472         21,391  
Premises and equipment held for sale       600         -  
Other real estate owned (OREO)       8,305         9,341  
Accrued interest receivable       4,786         4,511  
Investment in bank owned life insurance       35,843         29,398  
Core deposit intangible       3,186         -  
Net deferred tax assets       6,624         5,922  
Other assets       3,877         4,559  
Total Assets   $   1,586,288     $   1,405,961  
         
Liabilities and Stockholders' Equity        
Liabilities        
Deposits        
Non-interest-bearing deposits   $   214,249     $   159,844  
Interest-bearing deposits       1,109,619         946,393  
Total deposits       1,323,868         1,106,237  
Short-term borrowings       36,500         87,500  
Long-term debt       30,467         55,498  
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       13,207         11,769  
Total Liabilities       1,439,042         1,296,004  
         
Stockholders' Equity        
Common stock - par value $.01; authorized - 15,000,000 shares;        
  issued 5,574,511 and 4,649,658 shares, respectively       56         46  
Additional paid in capital       84,106         48,209  
Retained earnings       66,021         63,648  
Accumulated other comprehensive loss       (2,182 )       (1,191 )
Unearned ESOP shares       (755 )       (755 )
Total Stockholders' Equity       147,246         109,957  
Total Liabilities and Stockholders' Equity   $   1,586,288     $   1,405,961  
         
* Derived from audited financial statements.        
         


             
THE COMMUNITY FINANCIAL CORPORATION            
SELECTED CONSOLIDATED FINANCIAL DATA            
       
     Three Months Ended (Unaudited)     Six Months Ended (Unaudited) 
    June 30, 2018   June 30, 2017   June 30, 2018   June 30, 2017
KEY OPERATING RATIOS                
Return on average assets        0.59  %       0.74  %       0.45  %       0.72  %
Return on average common equity       6.34         9.36         4.84         9.07  
Average total equity to average total assets       9.32         7.91         9.30         7.95  
Interest rate spread       3.21         3.27         3.28         3.28  
Net interest margin        3.41         3.39         3.47         3.40  
Cost of funds       0.94         0.79         0.89         0.76  
Cost of deposits       0.74         0.53         0.68         0.51  
Cost of debt       3.17         2.22         2.84         2.23  
Efficiency ratio        73.23         62.83         78.63         63.35  
Efficiency ratio - Non-GAAP**       65.51         60.59         63.92         61.39  
Non-interest expense to average assets       2.47         2.19         2.71         2.20  
Net operating expense to average assets       2.24         1.89         2.47         1.91  
Net operating exp. to average assets - Non-GAAP**       1.97         1.83         1.95         1.86  
Avg. int-earning assets to avg. int-bearing liabilities       121.22         117.07         121.16         116.69  
Net charge-offs to average loans       0.05         0.02         0.11         0.03  
COMMON SHARE DATA                
Basic net income per common share   $   0.42     $   0.55     $   0.64     $   1.05  
Diluted net income per common share       0.42         0.55         0.64         1.05  
Cash dividends paid per common share       0.10         0.10         0.20         0.20  
Weighted average common shares outstanding:                
    Basic       5,551,123         4,632,911         5,549,428         4,630,647  
    Diluted       5,551,123         4,635,483         5,549,428         4,633,720  
                 
                 
                 
THE COMMUNITY FINANCIAL CORPORATION            
SELECTED CONSOLIDATED FINANCIAL DATA (UNAUDITED) - Continued        
    (Unaudited)            
(dollars in thousands, except per share amounts)   June 30, 2018   December 31, 2017   $ Change   % Change
ASSET QUALITY                
Total assets   $   1,586,288     $   1,405,961     $   180,327         12.8  %
Gross loans       1,290,415         1,150,044         140,371         12.2  
Classified Assets       43,536         50,298         (5,562 )       (11.1 )
Allowance for loan losses       10,725         10,515         210         2.0  
                 
Past due loans - 31 to 89 days       582         9,227         (8,645 )       (93.7 )
Past due loans >=90 days       12,347         2,483         9,864         397.3  
Total past due (delinquency) loans       12,929         11,710         1,219         10.4  
                 
Non-accrual loans (a)       14,492         4,693         9,799         208.8  
Accruing troubled debt restructures (TDRs) (b)       9,864         10,021         (157 )       (1.6 )
Other real estate owned (OREO)       8,305         9,341         (1,036 )       (11.1 )
Non-accrual loans, OREO and TDRs   $   32,661     $   24,055     $   8,606         35.8  
ASSET QUALITY RATIOS                
Classified assets to total assets       2.74  %       3.58  %        
Classified assets to risk-based capital       23.88         32.10          
Allowance for loan losses to total loans       0.83         0.91          
Allowance for loan losses to non-accrual loans       74.01         224.06          
Past due loans - 31 to 89 days to total loans        0.05         0.80          
Past due loans >=90 days to total loans       0.96         0.22          
Total past due (delinquency) to total loans       1.00         1.02          
Non-accrual loans to total loans        1.12         0.41          
Non-accrual loans and TDRs to total loans        1.89         1.28          
Non-accrual loans and OREO to total assets       1.44         1.00          
Non-accrual loans, OREO and TDRs to total assets        2.06         1.71          
COMMON SHARE DATA                
Book value per common share   $   26.41     $   23.65          
Tangible book value per common share**       23.94     ***          
Common shares outstanding at end of period       5,574,511         4,649,658          
OTHER DATA                
Full-time equivalent employees       195         165          
Branches (c)     12       11          
Loan Production Offices     5       5          
CAPITAL RATIOS                 
Tier 1 capital to average assets       9.46  %       8.79  %        
Tier 1 common capital to risk-weighted assets       10.32         9.51          
Tier 1 capital to risk-weighted assets       11.23         10.53          
Total risk-based capital to risk-weighted assets       13.78         13.40          
Common equity to assets     9.28 %     7.82 %        
Tangible common equity to tangible assets **     8.49 %   ***          
         
** Non-GAAP financial measure. See reconciliation of GAAP and NON-GAAP measures. 
             
*** The Company had no intangible assets before January 1, 2018. 
 
(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, 2018 and December 31, 2017, the Bank had total TDRs of $9.9 million and $10.8 million, respectively, with $0 and $769,000, respectively, in non-accrual status. These loans are classified as non-accrual loans for the calculation of financial ratios.
 
(c) The Company closed four of the five acquired County First branches in May 2018. 
                 
                 
                 
THE COMMUNITY FINANCIAL CORPORATION
SELECTED CONSOLIDATED FINANCIAL DATA (UNAUDITED) - Continued
                 
This press release, including the accompanying financial statement tables, contains financial information determined by methods other than in accordance with generally accepted accounting principles, or GAAP. This financial information includes certain operating performance measures, which exclude merger and acquisition costs, OREO gains and losses and OREO expenses, and gains and losses on sales of investments or other assets, that are not considered part of recurring operations.  These non-GAAP measures are included because the Company believes they may provide useful supplemental information for evaluating the underlying performance trends of the Company.
 
     Three Months Ended (Unaudited)     Six Months Ended (Unaudited) 
    June 30, 2018   June 30, 2017   June 30, 2018   June 30, 2017
                 
RECONCILIATION OF GAAP AND NON-GAAP FINANCIAL MEASURES        
Efficiency ratio - GAAP basis                
Noninterest expense   $   9,741     $   7,530     $   21,408     $   14,909  
Net interest income plus noninterest income       13,304         11,985         27,225         23,534  
                 
Efficiency ratio - GAAP basis     73.22 %     62.83 %     78.63 %     63.35 %
                 
Efficiency ratio - Non-GAAP basis                
Noninterest Expense   $   9,741     $   7,530     $   21,408     $   14,909  
Non-GAAP adjustments:                
Merger and acquisition costs       (741 )       (238 )       (3,609 )       (255 )
OREO valuation allowance and expenses       (229 )       (145 )       (343 )       (340 )
Noninterest expense - as adjusted       8,771         7,147         17,456         14,314  
                 
Net interest income plus noninterest income       13,304         11,985         27,225         23,534  
Non-GAAP adjustments:                
(Gains) losses on sale of asset       (1 )       (47 )       (1 )       (47 )
Net (gains) losses on sale of OREO       8         (9 )       8         (36 )
Net (gains) losses on sale of investment securities       -         (133 )       -         (133 )
Unrealized (gains) losses on equity securities       78         -         78         -  
Net interest income plus noninterest income - adjusted   $   13,389     $   11,796     $   27,310     $   23,318  
                 
Efficiency ratio -Non-GAAP basis     65.51 %     60.59 %     63.92 %     61.39 %
                 
                 
Net operating exp. to average assets ratio - GAAP basis            
Average Assets   $   1,579,645     $   1,373,832     $   1,580,586     $   1,355,922  
                 
Noninterest expense       9,741         7,530         21,408         14,909  
less: noninterest income       (893 )       (1,052 )       (1,924 )       (1,927 )
Net operating exp.   $   8,848     $   6,478     $   19,484     $   12,982  
Net operating exp. to average assets - GAAP basis     2.24 %     1.89 %     2.47 %     1.91 %
                 
Net operating exp. to average assets ratio -Non-GAAP basis            
Average Assets   $   1,579,645     $   1,373,832     $   1,580,586     $   1,355,922  
                 
Net operating exp.       8,848         6,478         19,484         12,982  
Non-GAAP adjustments noninterest expense:                 
Merger and acquisition costs       (741 )       (238 )       (3,609 )       (255 )
OREO valuation allowance and expenses       (229 )       (145 )       (343 )       (340 )
Non-GAAP adjustments non interest income:                
Gains (losses) on sale of asset       1         47         1         47  
Net gains (losses) on sale of OREO       (8 )       9         (8 )       36  
Net gains (losses) on sale of investment securities       -         133         -         133  
Unrealized gains (losses) on equity securities       (78 )       -         (78 )       -  
Net operating exp.-adjusted   $   7,793     $   6,284     $   15,447     $   12,603  
Net operating exp. to average assets - Non-GAAP basis   1.97 %     1.83 %     1.95 %     1.86 %
                 


 
THE COMMUNITY FINANCIAL CORPORATION
SUMMARY OF LOAN PORTFOLIO 
(dollars in thousands) 
                                 
    (Unaudited)       (Unaudited)       *       (Unaudited)   (Unaudited)
BY LOAN TYPE   June 30, 2018   %   March 31, 2018   %   December 31, 2017   %   September 30, 2017   June 30, 2017
                                 
Commercial real estate   $   828,445   64.20 %   $   817,576   63.88 %   $   727,314   63.25 %   $   712,840   $   713,789
Residential first mortgages       163,090   12.64 %       166,390   13.00 %       170,374   14.81 %       175,816       181,386
Residential rentals       127,469   9.88 %       129,026   10.08 %       110,228   9.58 %       110,905       103,361
Construction and land development       28,647   2.22 %       28,226   2.21 %       27,871   2.42 %       31,094       32,603
Home equity and second mortgages       37,026   2.87 %       39,481   3.09 %       21,351   1.86 %       22,334       20,847
Commercial loans       57,519   4.46 %       52,198   4.08 %       56,417   4.91 %       56,376       55,023
Consumer loans       801   0.06 %       853   0.07 %       573   0.05 %       541       412
Commercial equipment        47,418   3.67 %       45,905   3.59 %       35,916   3.12 %       35,500       34,589
Gross loans       1,290,415   100.00 %       1,279,655   100.00 %       1,150,044   100.00 %       1,145,406       1,142,010
Net deferred costs (fees)       1,122   0.09 %       1,118   0.09 %       1,086   0.09 %       1,033       853
Total loans, net of deferred costs   $   1,291,537       $   1,280,773       $   1,151,130       $   1,146,439   $   1,142,863
                                 
* Derived from audited financial statements.                                
                                 
    (Unaudited)       (Unaudited)       *       (Unaudited)   (Unaudited)
BY ACQUIRED AND NON-ACQUIRED   June 30, 2018   %   March 31, 2018   %   December 31, 2017   %   September 30, 2017   June 30, 2017
                                 
Acquired loans - performing   $   115,157   8.92 %   $   121,615   9.50 %   $   -   0.00 %   $   -   $   -
Acquired loans - purchase credit impaired ("PCI")       3,839   0.30 %       3,871   0.30 %       -   0.00 %       -       -
Total acquired loans       118,996   9.22 %       125,486   9.81 %       -   0.00 %       -       -
Non-acquired loans**       1,171,419   90.78 %       1,154,169   90.19 %       1,150,044   100.00 %       1,145,406       1,142,010
Gross loans       1,290,415           1,279,655           1,150,044           1,145,406       1,142,010
Net deferred costs (fees)       1,122   0.09 %       1,118   0.09 %       1,086   0.09 %       1,033       853
Total loans, net of deferred costs   $   1,291,537       $   1,280,773       $   1,151,130       $   1,146,439   $   1,142,863
                                 
* Derived from audited financial statements. 
** Non-acquired loans include loans transferred from acquired pools following release of acquisition accounting FMV adjustments. 
 


                 
THE COMMUNITY FINANCIAL CORPORATION
ALLOWANCE FOR LOAN LOSSES  
THREE MONTHS ENDED 
    (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)
(dollars in thousands)   June 30, 2018   March 31, 2018   December 31, 2017   September 30, 2017   June 30, 2017
                     
Beginning of period   $   10,471     $   10,515     $   10,435     $   10,434     $   10,109  
                     
Charge-offs       (164 )       (580 )       (13 )       (253 )       (68 )
Recoveries       18         36         63         30         17  
Net charge-offs       (146 )       (544 )       50         (223 )       (51 )
                     
Provision for loan losses       400         500         30         224         376  
End of period   $   10,725     $   10,471     $   10,515     $   10,435     $   10,434  
                     
Net charge-offs to average loans (annualized)     -0.05 %     -0.17 %     0.02 %     -0.08 %     -0.02 %
                     
Breakdown of general and specific allowance as a percentage of gross loans
General allowance   $   9,359     $   9,310     $   9,491     $   9,617     $   8,958  
Specific allowance       1,366         1,161         1,024         818         1,476  
    $   10,725     $   10,471     $   10,515     $   10,435     $   10,434  
General allowance     0.73 %     0.73 %     0.82 %     0.84 %     0.78 %
Specific allowance     0.11 %     0.09 %     0.09 %     0.07 %     0.13 %
Allowance to gross loans     0.83 %     0.82 %     0.91 %     0.91 %     0.91 %
                     
Allowance to non-acquired gross loans     0.92 %     0.91 %     0.91 %     0.91 %     0.91 %
                                         


                                 
THE COMMUNITY FINANCIAL CORPORATION
SUMMARY OF  DEPOSITS 
(dollars in thousands)   (Unaudited)   (Unaudited)   *   (Unaudited)   (Unaudited)
    June 30, 2018   March 31, 2018   December 31, 2017   September 30, 2017   June 30, 2017
(dollars in thousands)   Balance   %   Balance   %   Balance   %   Balance   %   Balance   %
Noninterest-bearing demand   $   214,249   16.18 %   $   229,612   17.86 %   $   159,844   14.45 %   $   157,665   14.36 %   $   154,962   14.25 %
Interest-bearing:                                        
Demand       307,986   23.26 %       217,039   16.88 %       215,447   19.48 %       195,632   17.82 %       190,674   17.53 %
Money market deposits       281,975   21.30 %       284,449   22.12 %       226,351   20.46 %       229,740   20.92 %       238,822   21.95 %
Savings       73,142   5.52 %       76,360   5.94 %       52,990   4.79 %       54,310   4.95 %       54,361   5.00 %
Certificates of deposit       446,516   33.73 %       478,476   37.21 %       451,605   40.82 %       460,654   41.95 %       448,987   41.27 %
Total interest-bearing       1,109,619   83.82 %       1,056,324   82.14 %       946,393   85.55 %       940,336   85.64 %       932,844   85.75 %
                                         
Total Deposits   $   1,323,868   100.00 %   $   1,285,936   100.00 %   $   1,106,237   100.00 %   $   1,098,001   100.00 %   $   1,087,806   100.00 %
                                         
Transaction accounts   $    877,352   66.27 %   $    807,460   62.79 %   $    654,632   59.18 %   $    637,347   58.05 %   $    638,819   58.73 %
                                         
* Derived from audited financial statements. 
                                         


                     
THE COMMUNITY FINANCIAL CORPORATION   
RECONCILIATION OF NON-GAAP MEASURES   
                       
Reconciliation of US GAAP total assets, common equity, common equity to assets and book value to Non-GAAP tangible assets, tangible common equity, tangible common equity to tangible assets and tangible book value.
 
This press release, including the accompanying financial statement tables, contains financial information determined by methods other than in accordance with generally accepted accounting principles, or GAAP. This financial information includes certain  performance measures, which exclude intangible assets.  These non-GAAP measures are included because the Company believes they may provide useful supplemental information for evaluating the underlying performance trends of the Company.
                       
    (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)  
(dollars in thousands, except per share amounts)   June 30, 2018   March 31, 2018   December 31, 2017   September 30, 2017   June 30, 2017  
                       
Total assets   $   1,586,288     $   1,576,996     $   1,405,961     $   1,402,172     $   1,392,688    
Less: intangible assets                      
Goodwill       10,603         10,277         -         -         -    
Core deposit intangible       3,186         3,385         -         -         -    
Total intangible assets       13,789         13,662         -         -         -    
Tangible assets   $   1,572,499     $   1,563,334     $   1,405,961     $   1,402,172     $   1,392,688    
                       
Total common equity   $   147,246     $   145,657     $   109,957     $   110,885     $   109,293    
Less: intangible assets       13,789         13,662         -         -         -    
Tangible common equity   $   133,457     $   131,995     $   109,957     $   110,885     $   109,293    
                       
Common shares outstanding at end of period       5,574,511         5,573,841         4,649,658         4,649,302         4,648,199    
                       
GAAP common equity to assets     9.28 %     9.24 %     7.82 %     7.91 %     7.85 %  
Non-GAAP tangible common equity to tangible assets     8.49 %     8.44 %     7.82 %     7.91 %     7.85 %  
                       
GAAP common book value per share   $   26.41     $   26.13     $   23.65     $   23.85     $   23.51    
Non-GAAP tangible common book value per share   $   23.94     $   23.68     $   23.65     $   23.85     $   23.51    
                                           


 
THE COMMUNITY FINANCIAL CORPORATION
SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED)
  Three Months Ended 
CONDENSED CONSOLIDATED INCOME STATEMENT   June 30,   March 31,   December 31,   September 30,   June 30,
(dollars in thousands, except per share amounts )     2018       2018       2017       2017       2017  
Interest and Dividend Income                    
  Loans, including fees    $ 14,483     $ 14,726     $ 12,560     $ 12,671     $ 12,410  
  Interest and dividends on securities     1,211       1,095       999       988       973  
  Interest on deposits with banks     60       72       14       21       12  
Total Interest and Dividend Income     15,754       15,893       13,573       13,680       13,395  
                     
Interest Expense                    
  Deposits     2,405       1,956       1,712       1,563       1,403  
  Short-term borrowings     217       283       323       304       283  
  Long-term debt     721       764       765       805       776  
Total Interest Expense     3,343       3,003       2,800       2,672       2,462  
                     
Net Interest Income (NII)     12,411       12,890       10,773       11,008       10,933  
  Provision for loan losses     400       500       30       224       376  
                     
NII After Provision For Loan Losses      12,011       12,390       10,743       10,784       10,557  
                     
Noninterest Income                    
Loan appraisal, credit, and misc. charges     7       53       73       28       9  
Gain on sale of asset     1       -       -       -       47  
Net gains (losses) on sale of OREO     (8 )     -       7       -       9  
Net gains (losses) on sale of investment securities     -       -       42       -       133  
Unrealized gains (losses) on equity securities     (78 )     -       -       -       -  
Income from bank owned life insurance     224       226       192       196       194  
Service charges     747       752       686       639       660  
Gain on sale of loans held for sale     -       -       -       294       -  
Total Noninterest Income     893       1,031       1,000       1,157       1,052  
                     
Noninterest Expense                    
Salary and employee benefits     5,129       5,047       4,191       4,056       4,198  
Occupancy expense     739       766       691       630       658  
Advertising     180       159       139       156       140  
Data processing expense      782       683       588       555       634  
Professional fees     426       352       472       510       360  
Merger and acquisition costs     741       2,868       335       239       238  
Depreciation of premises and equipment     202       199       192       191       204  
Telephone communications     69       99       49       46       45  
Office supplies     41       40       33       26       28  
FDIC Insurance     113       198       133       178       161  
OREO valuation allowance and expenses     229       114       123       283       145  
Core deposit intangible amortization     199       205       -       -       -  
Other     891       937       800       572       719  
Total Noninterest Expense     9,741       11,667       7,746       7,442       7,530  
                     
  Income before income taxes     3,163       1,754       3,997       4,499       4,079  
  Income tax expense     828       533       4,456       1,717       1,536  
Net (Loss) Income    $ 2,335     $ 1,221     $ (459 )   $ 2,782     $ 2,543  
                     
                     
                     
THE COMMUNITY FINANCIAL CORPORATION
SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED) - Continued
            *        
CONDENSED CONSOLIDATED BALANCE SHEETS   June 30,   March 31,   December 31,   September 30,   June 30,
(dollars in thousands, except per share amounts )     2018       2018       2017       2017       2017  
Assets                    
Cash and due from banks    $   16,718     $   29,739     $   13,315     $   15,627     $   14,982  
Federal funds sold       -         730         -         -         -  
Interest-bearing deposits with banks       3,667         3,986         2,102         1,577         1,338  
Securities available for sale (AFS), at fair value       79,026         66,603         68,285         61,376         54,288  
Securities held to maturity (HTM), at amortized cost       100,842         97,949         99,125         104,530         106,842  
Securities carried at fair value through income       4,367         4,421         -          
Non-marketable equity securities held in other financial institutions     249         249         121          
Federal Home Loan Bank (FHLB) stock - at cost       4,311         5,587         7,276         7,447         7,745  
Loans receivable       1,291,537         1,280,773         1,151,130         1,146,439         1,142,863  
Less: allowance for loan losses       (10,725 )       (10,471 )       (10,515 )       (10,435 )       (10,434 )
                                         
Net Loans       1,280,812         1,270,302         1,140,615         1,136,004         1,132,429  
                                         
Goodwill       10,603         10,277         -         -         -  
Premises and equipment, net       22,472         22,496         21,391         21,751         22,042  
Premises and equipment held for sale       600         2,341         -         -         -  
Other real estate owned (OREO)       8,305         9,352         9,341         9,741         9,154  
Accrued interest receivable       4,786         4,749         4,511         4,494         4,212  
Investment in bank owned life insurance       35,843         35,619         29,398         29,206         29,011  
Core deposit intangible       3,186         3,385         -         -         -  
Net deferred tax assets       6,624         6,239         5,922          
Other assets       3,877         2,972         4,559         10,419         10,645  
                     
Total Assets   $   1,586,288     $   1,576,996     $   1,405,961     $   1,402,172     $   1,392,688  
                     
Liabilities and Stockholders' Equity                    
                     
Liabilities                    
Deposits                    
Non-interest-bearing deposits   $   214,249     $   229,612     $   159,844     $   157,665     $   154,962  
Interest-bearing deposits       1,109,619         1,056,324         946,393         940,336         932,844  
Total deposits       1,323,868         1,285,936         1,106,237         1,098,001         1,087,806  
Short-term borrowings       36,500         51,500         87,500         91,500         88,500  
Long-term debt       30,467         45,483         55,498         55,514         65,529  
Guaranteed preferred beneficial interest in                    
  junior subordinated debentures (TRUPs)       12,000         12,000         12,000         12,000         12,000  
Subordinated notes - 6.25%       23,000         23,000         23,000         23,000         23,000  
Accrued expenses and other liabilities       13,207         13,420         11,769         11,272         6,560  
                     
Total Liabilities       1,439,042         1,431,339         1,296,004         1,291,287         1,283,395  
                     
Stockholders' Equity                    
Common stock        56         56         46         46         46  
Additional paid in capital       84,106         83,947         48,209         47,994         47,847  
Retained earnings       66,021         64,307         63,648         64,375         62,058  
Accumulated other comprehensive loss       (2,182 )       (1,898 )       (1,191 )       (538 )       (489 )
Unearned ESOP shares       (755 )       (755 )       (755 )       (992 )       (169 )
                     
Total Stockholders' Equity       147,246         145,657         109,957         110,885         109,293  
                     
Total Liabilities and Stockholders' Equity   $   1,586,288     $   1,576,996     $   1,405,961     $   1,402,172     $   1,392,688  
                     
Common shares issued and outstanding       5,574,511         5,573,841         4,649,658         4,649,302         4,648,199  
                     
* Derived from audited financial statements.                    
                     
                     
                     
THE COMMUNITY FINANCIAL CORPORATION
SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED) - Continued
  Three Months Ended 
SELECTED FINANCIAL INFORMATION AND RATIOS   June 30,   March 31,   December 31,   September 30,   June 30,
(dollars in thousands, except per share amounts )     2018       2018       2017       2017       2017  
KEY OPERATING RATIOS                    
Return on average assets        0.59  %       0.31  %       (0.13 )%       0.80  %       0.74  %
Return on average common equity       6.34         3.33         (1.62 )       9.99         9.36  
Average total equity to average total assets       9.32         9.28         8.08         7.97         7.91  
Interest rate spread       3.21         3.36         3.14         3.24         3.27  
Net interest margin        3.41         3.54         3.29         3.38         3.39  
Cost of funds       0.94         0.84         0.88         0.84         0.79  
Cost of deposits       0.74         0.62         0.63         0.58         0.53  
Cost of debt       3.17         2.59         2.34         2.34         2.22  
Efficiency ratio        73.23         83.81         65.79         61.18         62.83  
Efficiency ratio - Non-GAAP **       65.51         62.39         62.16         56.88         60.59  
Non-interest expense to average assets       2.47         2.95         2.21         2.13         2.19  
Net operating expense to average assets       2.24         2.69         1.93         1.80         1.89  
Net operating expense to average assets - Non-GAAP **       1.97         1.94         1.81         1.65         1.83  
Avg. int-earning assets to avg. int-bearing liabilities       121.22         121.10         117.76         116.64         117.07  
Net charge-offs to average loans       0.05