The Community Financial Corporation Announces Third Quarter 2020 Results

Third Quarter 2020 Highlights

• Net income totaled $3.8 million for the quarter ended September 30, 2020, or $0.64 per diluted common share compared to net income of $3.7 million or $0.66 per diluted common share for the quarter ended September 30, 2019.
• A $2.5 million provision for loan losses was recorded during the quarter ended September 30, 2020, primarily due to economic uncertainties from the COVID-19 pandemic, bringing the year to date provision to $10.1 million.
• Efficiency ratio was 55.5% and 56.0% for the third quarter and nine months ended September 30, 2020 compared to 62.5% and 61.7% for the same periods in 2019.
• The Company’s return on average assets  ("ROAA") and return on average common equity ("ROACE") were 0.73% and 7.86% for the three months ended September 30, 2020 compared to 0.84% and 8.86% for the three months ended September 30, 2019. The Company’s ROAA and ROACE were 0.68% and 7.06% for the nine months ended September 30, 2020 compared to 0.87% and 9.22% for the nine months ended September 30, 2019.
• Pre-tax, pre-provision ("PTPP") ROAA and PTPP ROACE increased to 1.46% and 15.7% for the quarter ended September 30, 2020 compared to 1.26% and 13.3% for the quarter ended September 30, 2019.
• PTPP ROA and ROACE were 1.53% and 15.9% during the first nine months of 2020 compared to 1.29% and 13.7% for the same period in 2019.
• Subordinated debt of $20.0 million issued on October 14, 2020.

WALDORF, Md., Nov. 02, 2020 (GLOBE NEWSWIRE) -- The Community Financial Corporation (NASDAQ: TCFC) (the “Company”), the holding company for Community Bank of the Chesapeake (the “Bank”), today reported its results of operations for the third quarter and nine months ended September 30, 2020. Net income for the three months ended September 30, 2020 was $3.8 million, or $0.64 per diluted common share compared with net income of $3.5 million, or $0.59 per diluted common share for the second quarter of 2020, and net income of $3.7 million or $0.66 per diluted common share for the quarter ended September 30, 2019. The Company reported net income for the nine months ended September 30, 2020 of $10.0 million, or $1.70 per diluted common share compared to a net income for the comparable period of 2019 of $11.2 million, or $2.01 per diluted common share. As a result of the COVID-19 pandemic, third quarter and year to date 2020 earnings were impacted by increased provisions for loan losses ("PLL") of $2.5 million and $10.1 million, respectively, compared to $450,000 and $1.3 million for the three and nine months ended September 30, 2019.

"As we continue to work with our customers during the pandemic, I am proud of our team's focus and commitment to each other and our communities, which has resulted in an increase in core earnings. We completed the third quarter of 2020 with net income of $3.8 million, which included a $2.5 million provision for loan losses," stated William J. Pasenelli, President and Chief Executive Officer. "The Company's pre-tax pre-provision ("PTPP") income improved to $22.5 million, a $5.8 million or 35.1% increase over the first nine months of 2019. This has resulted in PTPP ROAA and ROACE improving to 1.53% and 15.9% during the first nine months of 2020."

"We are expecting the COVID-19 deferred portfolio to decrease from $251.5 million or 16.8% of loans at September 30, 2020 to between 2% and 4% by December 31, 2020," stated James M. Burke, Executive Vice President and Bank President. "Deferral customers are returning to normal payments as scheduled with very few exceptions. At this time, additional deferrals have only been granted to those clients in industries that have been the most negatively impacted by the pandemic. The continued improvement has been driven by the resilience of our local economy which is inextricably tied to federal government spending. Our ongoing commitment to our communities will continue by providing access to existing and future federal and state relief programs."

Balance Sheet - Asset Quality

COVID-19 Loan Programs

The outbreak of COVID-19 has adversely impacted a range of industries in the Company's footprint. The length and the severity of the pandemic could prevent our customers from fulfilling their financial obligations to the Company. The Coronavirus Aid, Relief and Economic Security ("CARES") Act was signed into law on March 27, 2020 as a $2 trillion legislative package. The goal of the CARES Act is to prevent a severe economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors. There have been additional clarifications to regulation and legislation since the original law was passed. The Company has taken significant steps to protect the health and well-being of its employees and customers and to assist customers who have been impacted by the COVID-19 pandemic.

We have originated U.S. Small Business Administration ("SBA") Paycheck Protection Program ("PPP") loans for our customers. As of September 30, 2020, the Company had originated 963 SBA PPP loans with balances of $131.1 million. We are ready to assist our customers if an additional round of funding is authorized by the President of the United States ("POTUS") and Congress. No credit issues are anticipated with SBA PPP loans as they are guaranteed by the SBA and the Bank's allowance for loan loss does not include an allowance for U.S. SBA PPP loans.

We have payment deferral programs for our customers who are adversely affected by the pandemic. Beginning in April of 2020, the Company deferred either the full loan payment or the principal component of the loan payment between 90 and 180 days with most deferrals set to a six month period. As of September 30, 2020, $251.5 million or 16.8% of gross portfolio loans   had deferral agreements, down $13.4 million from $264.9 million or 17.7% of total gross portfolio loans as of June 30, 2020. These loans were current prior to the COVID-19 crisis and will not be considered delinquent loans or troubled debt restructures ("TDRs") upon completion of the modification agreements. Additionally, none of the deferrals are reflected in the Company’s asset quality measures (i.e., non-performing loans) due to the provision of the CARES Act that permits U.S. financial institutions to temporarily suspend the U.S. GAAP requirements to treat such short-term loan modifications as TDRs.

We expect the COVID-19 pandemic to have an adverse effect on our loan production and the credit quality of our loan portfolio during the remainder of 2020. Disruption to our customers could result in increased loan delinquencies and defaults and a decline in local loan demand. The Company's COVID-19 loan d