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TCFC Community Financial

Filed: 5 Feb 21, 9:58am

EXHIBIT 99.1

The Community Financial Corporation Announces Record Results of 1.18% Return on Average Assets for Fourth Quarter 2020

Fourth Quarter and Full Year 2020 Highlights

  • Net Income: Net income totaled $6.1 million for the quarter ended December 31, 2020, or $1.04 per diluted common share, a 42% increase per share compared to net income of $4.1 million or $0.73 per diluted common share for the quarter ended December 31, 2019.
  • Overall Profitability: The Company’s return on average assets ("ROAA") and return on average common equity ("ROACE") were 1.18% and 12.51% for the three months ended December 31, 2020 compared to 0.91% and 9.58% for the three months ended December 31, 2019. The Company’s ROAA and ROACE were 0.81% and 8.46% for the twelve months ended December 31, 2020 compared to 0.88% and 9.32% for the twelve months ended December 31, 2019.
  • Core Profitability: Pre-tax, pre-provision ("PTPP") ROAA and PTPP ROACE increased to 1.71% and 18.08% for the quarter ended December 31, 2020 compared to 1.43% and 15.14% for the quarter ended December 31, 2019. PTPP ROAA and ROACE were 1.58% and 16.43% for the year ended December 31, 2020 compared to 1.32% and 14.07% for the same period in 2019.
  • Loan Deferrals: At December 31, 2020, COVID-19 deferred loans decreased to $35.4 million, 1.75% of assets, or 2.35% of gross loans, excluding U.S. Small Business Administration ("SBA") Paycheck Protection Program ("PPP") loans.
  • Provision: The Company's provision for loan losses ("PLL") decreased to $0.6 million during the quarter ended December 31, 2020 compared to $2.5 million in the previous quarter. Economic uncertainty from the COVID-19 pandemic resulted in the Company increasing the provision to $10.7 million in 2020 from $2.1 million in 2019.
  • Capital Infusion: $20.0 million of 4.75% subordinated debt was issued on October 14, 2020.
  • Debt Retirement: The Company used excess liquidity to decrease debt $100.9 million in the fourth quarter of 2020, paying off $85.9 million of the Federal Reserve Paycheck Protection Program Liquidity Facility ("PPPLF") and higher cost Federal Home Loan Bank ("FHLB") advances of $15.0 million.

WALDORF, Md., Feb. 05, 2021 (GLOBE NEWSWIRE) -- The Community Financial Corporation (NASDAQ: TCFC) (the “Company”), the holding company for Community Bank of the Chesapeake (the “Bank”), reported its results of operations for the fourth quarter and year ended December 31, 2020. Net income for the three months ended December 31, 2020 of $6.1 million, or $1.04 per diluted common share compared with net income of $3.8 million, or $0.64 per diluted common share for the third quarter of 2020, and net income of $4.1 million, or $0.73 per diluted common share for the quarter ended December 31, 2019. The Company reported net income for the year ended December 31, 2020 of $16.1 million, or $2.74 per diluted common share compared to a net income of $15.3 million, or $2.75 per diluted common share for the year ended December 31, 2019. As a result of the COVID-19 pandemic, year to date 2020 earnings were impacted by an increased PLL of $10.7 million compared to $2.1 million for the year ended December 31, 2019.

"The 2020 COVID pandemic presented unprecedented challenges, and I could not be prouder of our team’s response. We helped our community and customers navigate economic uncertainty by originating Paycheck Protection Program loans and providing payment deferrals on our own portfolio loans. At the same time, we increased core profitability by maintaining a stable net interest margin, improving our funding composition, adding non-interest income and controlling expenses. To fortify our balance sheet in light of COVID-19 pandemic credit concerns we increased our allowance for loans losses, resolved multiple OREO assets and strengthened regulatory capital by issuing subordinated debt. We believe the Bank is well-positioned to address potential future charge-offs related to the COVID-19 pandemic. We are optimistic that the Company's 2020 core profitability will result in increased overall profitability in 2021," stated William J. Pasenelli, President and Chief Executive Officer. "Due to the Company's strong balance sheet and increased profitability we intend to increase common stock repurchases in 2021 and increase our quarterly per share dividend 20% to $0.15 for first quarter dividends paid in the second quarter of 2021."

"At December 31, 2020, COVID-19 deferred loans decreased to $35.4 million, 2.35% of portfolio loans or 1.75% of assets. We are encouraged that deferred loans at quarter end were in the lower range of our estimated 2% to 4% reported last quarter. During the fourth quarter, deferral customers returned to normal payments as scheduled with very few exceptions. Additional deferrals granted during the fourth quarter were to customers in industries that continue to require support to weather the pandemic. The overall improvement has been driven by the resilience of our local economy which is tied to the federal government. We will continue to support our communities with the next round of US SBA PPP relief passed by Congress in December 2020," stated James M. Burke, TCFC Executive Vice President and Bank President. "The addition of new customers throughout the pandemic contributed to our success in increasing lower cost transaction deposits in every year the last five years. Non-interest bearing accounts and transaction accounts increased to 20.7% and 79.7% of deposits at December 31, 2020 from 16.0% and 73.9% at December 31, 2019. We will continue to evaluate and, where applicable, rationalize our branch structure and physical footprint while still providing an optimal customer experience."

On October 20, 2020, the Board approved the 2020 stock repurchase plan which authorized the Company to repurchase up to 300,000 shares of the Company’s outstanding common stock using up to $7.0 million of the proceeds the Company raised in its recently completed $20.0 million subordinated debt offering. At that time, the Company expected to limit the capital allocated to repurchases during the fourth quarter of 2020 and the first quarter of 2021 to $0.3 million per quarter, for an aggregate of $0.6 million, while we monitored the impact of the pandemic on asset quality. Based on management's assessment of the adequacy of capital and loan loss reserves at December 31, 2020, the Board has approved up to $1.0 million of repurchases in the first quarter of 2021. If conditions continue to merit repurchases the Company intends to repurchase between $1.0 million and $2.0 million per quarter during 2021.

Results of Operations

  (UNAUDITED)    
  Three Months Ended December 31,    
(dollars in thousands) 2020 2019 $ Change % Change
         
Interest and dividend income $17,913  $18,279  $(366)  (2.0)%
Interest expense 1,941  4,566  (2,625)  (57.5) 
Net interest income 15,972  13,713  2,259   16.5  
Provision for loan losses 600  805  (205)  (25.5) 
Noninterest income 2,370  2,213  157   7.1  
Noninterest expense 9,472  9,488  (16)  (0.2) 
Income before income taxes 8,270  5,633  2,637   46.8  
Income tax (income) expense 2,131  1,558  573   36.8  
Net income $6,139  $4,075  $2,064    0.5 
                   

Net interest income increased as funding costs decreased at a faster rate than interest-earning asset repricing. The Company recorded $10.1 million in the provision for loan losses for the nine months ended September 30, 2020 due to the economic uncertainty of the COVID-19 pandemic. The provision for loan losses moderated in the fourth quarter of 2020 and management believes the ALLL at December 31, 2020 is adequate. Noninterest income increased primarily due to increased gains on the sale of investment securities partially offset by lower interest rate protection referral fee income. Noninterest expense was comparable for the periods as lower compensation and benefits and other expenses were offset by increased OREO valuation allowances and FDIC insurance.

  (UNAUDITED)    
  Year Ended December 31,    
(dollars in thousands) 2020 2019 $ Change % Change
         
Interest and dividend income $71,073  $72,453  $(1,380)  (1.9)%
Interest expense 10,156  18,919  (8,763)  (46.3) 
Net interest income 60,917  53,534  7,383   13.8  
Provision for loan losses 10,700  2,130  8,570   402.4  
Noninterest income 8,416  5,766  2,650   46.0  
Noninterest expense 38,003  36,233  1,770   4.9  
Income before income taxes 20,630  20,937  (307)  (1.5) 
Income tax expense 4,494  5,665  (1,171)  (20.7) 
Net income $16,136  $15,272  $864   5.7 %
                  

Net interest income increased in 2020 as funding costs decreased at a faster rate than interest-earning asset repricing. The economic uncertainty of the COVID-19 pandemic increased the provision for loan losses and noninterest expense. The increase in noninterest expense was primarily attributable to OREO valuation adjustments in connection with sales. Noninterest income increased primarily due to gains on the sale of investment securities and interest rate protection referral fee income. The decrease in income tax expense was due to a change in the Company's state tax apportionment approach that was implemented in the first quarter of 2020 as well as lower pre-tax income.

Net Interest Income

Net interest income increased $2.3 million or 16.5% for the three months ended December 31, 2020 compared to the three months ended December 31, 2019. Net interest margin of 3.40% for the three months ended December 31, 2020 increased 11 basis points from 3.29% for the comparable period. The increase in net interest income resulted primarily from significant decreases in interest expense from lower funding costs. Interest income decreased from significantly lower asset yields partially offset by increased interest income from larger average balances and accelerated loan fee recognition following the forgiveness of PPP loans.

Net interest income increased $7.4 million or 13.8% for the twelve months ended December 31, 2020 compared to the twelve months ended December 31, 2019. Net interest margin of 3.36% for the twelve months ended December 31, 2020 was five basis points higher than the 3.31% for the twelve months ended December 31, 2019. The increase in net interest margin from the twelve months of 2019 resulted primarily from the Company’s interest earning asset yields decreasing at a slower rate than overall funding costs. Interest earning asset yields decreased 56 basis points from 4.48% for the twelve months ended December 31, 2019 to 3.92% for the twelve months ended December 31, 2020. The Company’s cost of funds decreased 65 basis points from 1.22% for the twelve months ended December 31, 2019 to 0.57% for the twelve months ended December 31, 2020.

The sharp decline in interest rates in 2020 not only reduced interest income on floating-rate commercial loans and liquid interest-earning assets, but it also reduced competitive pressures and depositor expectations concerning deposit interest rates. In 2020, due to a slightly liability-sensitive balance sheet, the Company increased its net interest margin in the first quarter. Margins were stable during the second and third quarters and slightly increased during the fourth quarter of 2020 after adjusting for PPP loan and funding activity. Net interest margin increased from 3.27% for the three months ended September 30, 2020 to 3.40% for the three months ended December 31, 2020.

FHLB advances of $30.0 million were repaid early with a 2.2% average rate in the last six months of 2020. Prepayment fees totaled $0.6 million, increasing interest expense $0.1 million and $0.5 million in the three months ended September 30, 2020 and December 31, 2020, respectively.

Some compression of our core net interest margin is probable in 2021 as interest-earning assets begin to reprice faster than interest-bearing liabilities. The Bank's loan growth may slow due to overall economic conditions. Conversely, PPP loan forgiveness will positively impact margins and net interest income in the quarter(s) of forgiveness with the recognition of remaining net deferred fees.

Noninterest Income

Noninterest income increased $0.2 million or 7.1% for the three months ended December 31, 2020 compared to the three months ended December 31, 2019. The increase for the comparable periods was primarily due to gains on the sale of investment securities partially offset by decrease interest rate protection referral fee income. Noninterest income as a percentage of average assets was 0.46% and 0.49%, respectively, for the three months ended December 31, 2020 and 2019.

Noninterest income increased $2.7 million or 46.0% for the twelve months ended December 31, 2020 compared to the twelve months ended December 31, 2019. The increase was primarily due to increased interest rate protection referral fee income of $1.5 million and increased gains on the sale of securities of $1.2 million. Noninterest income as a percentage of assets was 0.42% and 0.33%, respectively, for the twelve months ended December 31, 2020 and 2019. The COVID-19 crisis has impacted spending habits of customers and reduced growth in service fee income as well as curtailed expected commercial loan volume which impacts interest rate protection agreement referral fee opportunities.

Noninterest Expense

Noninterest expense for the three months ended December 31, 2020 was comparable to the three months ended December 31, 2019. Compensation and benefits decreased due to adjustments to incentive compensation accruals. These reductions were partially offset by increases in FDIC insurance and OREO. The increase in FDIC insurance for the fourth quarter of 2020 was due to the application of a $0.2 million FDIC insurance credit taken in the fourth quarter of 2019. Increased OREO expenses reflect management's actions in 2020 to reduce non-performing assets. The Company's projected quarterly expense run rate for the first quarter of 2021 remains between $9.2-$9.4 million.

The Company’s efficiency ratio was 51.64% for the three months ended December 31, 2020 compared to 59.58% for the three months ended December 31, 2019. The Company’s net operating expense ratio was 1.37% for the three months ended December 31, 2020 compared to 1.62% for the three months ended December 31, 2019. The efficiency and net operating expense ratios have improved (decreased) as the Company has been able to generate more noninterest income while controlling expense growth.

Noninterest expense increased $1.8 million or 4.9% for the twelve months ended December 31, 2020 compared to the twelve months ended December 31, 2019. The increase in noninterest expense for the comparable periods was primarily due to increased OREO expenses. In addition, noninterest expense increased for the comparable periods as increases in data processing, professional fees and FDIC insurance were offset by decreases in all other operating expenses including compensation and benefits, occupancy, advertising, depreciation and other expenses. Noninterest expense decreased $0.5 million or 1.3% for the comparable periods if OREO expenses were excluded. Data processing cost increases include the Bank's continued investment in technology with the addition of the nCino Bank Operating System. The Company's investments in technology have slowed the growth of expenses as the asset size of the Bank has increased. Year to date compensation and benefits for the twelve months ended decreased a total of $0.9 million primarily due to the allocation of $0.5 million of deferred costs for U.S. SBA PPP loans originated during the second and third quarters of 2020.

The Company’s efficiency ratio was 54.81% for the twelve months ended December 31, 2020 compared to 61.10% for the twelve months ended December 31, 2019. The Company’s net operating expense ratio was 1.49% at December 31, 2020 compared to 1.75% at December 31, 2019. The efficiency and net operating expense ratios have improved (decreased) as the Company has been able to generate more noninterest income while controlling expense growth.

Income Tax Expense

For the year ended December 31, 2020 the effective tax rate was 21.8%.The Company's new state tax apportionment approach was implemented during the first quarter of 2020 and included the impact of amended income tax filings of the Company and Bank. Management evaluated the tax position and determined the change in tax position qualified as a change in estimate under FASB ASC Section 250. The following table shows a breakdown of income tax expense for the year ended December 31, 2020 split between the apportionment adjustment and a normalized 2020 income tax provision:

  (UNAUDITED)
  For the Year Ended December 31, 2020
(dollars in thousands) Tax Provision Effective Tax Rate
Income tax apportionment adjustment $(743)  (3.6)%
Income taxes before apportionment adjustment 5,237   25.4 %
Income tax expense as reported $4,494   21.8 %
     
Income before income taxes $20,630    
        

Balance Sheet

Assets

Total assets increased $228.9 million, or 12.7%, to $2.0 billion at December 31, 2020 compared to total assets of $1.8 billion at December 31, 2019, primarily due to increased net loans of $149.0 million with U.S. SBA PPP loans accounting for $108.0 million of the increase. In addition, investments increased $37.4 million, OREO decreased $4.7 million, cash increased $44.6 million and all other assets increased $2.6 million. The Company’s loan pipeline was approximately $134.0 million at December 31, 2020.

During the fourth quarter of 2020, total net loans, which include portfolio loans and U.S. SBA PPP loans, decreased 3.2% annualized or $13.0 million from $1,607.1 million at September 30, 2020 to $1,594.1 million at December 31, 2020. Gross portfolio loans increased 2.1% annualized or $7.7 million from $1,496.5 million at September 30, 2020 to $1,504.3 million at December 31, 2020. Portfolio loans include all loan portfolios except the U.S. SBA PPP loan portfolio.

Non-owner occupied commercial real estate as a percentage of risk-based capital at December 31, 2020 and December 31, 2019 were $695.8 million or 316% and $639.1 million or 320%, respectively. Construction loans as a percentage of risk-based capital at December 31, 2020 and December 31, 2019 were $139.2 million or 63% and $147.2 million or 74%, respectively. Regulatory loan concentrations decreased in the fourth quarter of 2020 from the investment of $10.0 million in the Bank from the issuance of subordinated debt of $20.0 million on October 14, 2020.

Funding

The Bank uses retail deposits and wholesale funding. Retail deposits continue to be the most significant source of funds totaling $1,737.6 million or 98.0% of funding at December 31, 2020 compared to $1,510.8 million or 97.0% of funding at December 31, 2019. Wholesale funding, which consisted of FHLB advances and brokered deposits was $35.3 million or 2.0% of funding at December 31, 2020 compared to $46.4 million or 3.0% of funding at December 31, 2019.

Total deposits increased $233.8 million or 15.5% at December 31, 2020 compared to December 31, 2019. The increase comprised a $274.1 million increase to transaction deposits offsetting a $40.3 million decrease to time deposits. Non-interest-bearing demand deposits increased $120.9 million or 50.1% at December 31, 2020, representing 20.74% of deposits, compared to 15.95% of deposits at December 31, 2019. The Bank increased on-balance sheet liquidity as deposit balances increased compared to the prior year. Customer deposit balances increased due to new customer acquisitions as well as lower levels of consumer and business spending related to the COVID-19 pandemic.

Stockholders' Equity and Regulatory Capital

During the twelve months ended December 31, 2020, total stockholders’ equity increased $16.5 million due to net income of $16.1 million, an increase in accumulated other comprehensive income of $3.0 million due to increased unrealized gains in the investment portfolio and net stock related activities in connection with stock-based compensation and ESOP activity of $0.5 million. These increases to stockholders’ equity were partially offset by common dividends paid of $2.8 million and stock repurchases of $0.3 million. The Company’s ratio of tangible common equity ("TCE") to tangible assets decreased to 9.22% at December 31, 2020 from 9.44% at December 31, 2019 (see Non-GAAP reconciliation schedules). The decrease in the TCE ratio was due primarily to significant increases in cash and loans from COVID-19 government stimulus.

In April 2020, banking regulators issued an interim final rule which excluded U.S. SBA PPP loans from the calculation of risk-based capital ratios by assigning a zero percent risk weight. The Company remains well capitalized at December 31, 2020 with a Tier 1 capital to average assets ("leverage ratio") of 9.56% at December 31, 2020 compared to 10.08% at December 31, 2019.

On December 31, 2019, the Company issued a total of 312,747 shares of its common stock, par value $0.01 in a private placement offering. The Company received net proceeds of $10.6 million after deal expenses. On February 15, 2020, the Company used the proceeds and a cash dividend from the Bank to redeem the Company’s outstanding $23.0 million of 6.25% fixed-to-floating rate subordinated notes.

On October 14, 2020, the Company issued $20.0 million in aggregate principal amount 4.75% Fixed to Floating Rate Subordinated Notes due 2030 (the "Offering"), which is treated as Tier 2 Capital at the Company. The Company contributed $10.0 million of net proceeds from the Offering to the Bank as Tier 1 Capital on October 15, 2020 and may use the remainder of the Offering net proceeds for general corporate purposes, to support bank regulatory capital ratios and for potential common stock share repurchases.

Asset Quality

COVID-19 Loan Programs

While the outbreak of COVID-19 adversely impacted a range of industries in the Company's footprint, we have taken steps to protect the health and well-being of our employees and customers and to assist customers who have been impacted by the COVID-19 pandemic. The Coronavirus Aid, Relief and Economic Security ("CARES") Act was signed into law on March 27, 2020. There have been additional clarifications to regulation and legislation since the original law was passed, including the recent legislation that authorized another round of federal government funding for US SBA PPP loans in December 2020.

During 2020 the Company originated 971 US SBA PPP loans with original balances of $140.9 million. As of December 31, 2020, US SBA PPP there were 867 loans with outstanding balances of $110.3 million. We are presently assisting our customers with the additional round of funding which began in January 2021. No credit issues are anticipated with US SBA PPP loans as they are guaranteed by the SBA and the Bank's allowance for loan loss does not include an allowance for US SBA PPP loans.

Beginning in April of 2020, the Company added COVID-19 payment deferral programs for impacted customers. 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 December 31, 2020, $35.4 million or 2.4% of gross portfolio loans had deferral agreements, down $216.1 million from $251.5 million or 16.8% of total gross portfolio loans as of September 30, 2020. This decline was in line with management's estimate of 2% to 4% of loans made at the end of the third quarter. All COVID-19 deferred loans were current prior to the crisis and will not be considered delinquent loans or troubled debt restructures ("TDRs") upon completion of the modification agreements due to provisions in the CARES Act and regulations that permit U.S. financial institutions to temporarily suspend U.S. GAAP requirements to treat such loan modifications as TDRs.

At December 31, 2020, deferrals were reflected in the Company’s asset quality measures for credit classifications (i.e., pass, special mention, substandard, doubtful) and accrual status (i.e., accrual vs. non-accrual). Below are schedules that provide information on COVID-19 deferred loans as of December 31, 2020:

  (UNAUDITED)
COVID-19 Deferred Loans December 31, 2020 Accrual Loans Non-Accrual Loans
(dollars in thousands) Loan
Balances
 % of Deferred
Loans
 % of Gross
Portfolio Loans
 Loan
Balances
 Number
of Loans
 Loan
Balances
 Number
of Loans
Commercial real estate $29,883  84.45% 1.98% $26,500  10 $3,382  4
Residential first mortgages 1,514  4.28  0.10  1,514  3   
Commercial equipment 3,987  11.27  0.27  3,987  17   
Total $35,384  100.00% 2.35% $32,001  30 $3,382  4
                       


COVID-19 Deferred Loans - Next Payment Due by Month (UNAUDITED)
(dollars in thousands) Loan Balances % Number of Loans
February-21 $4,024  11.38% 5
March-21 8,956  25.31  5
April-21 638  1.80  3
May-21 4,123  11.65  3
June-21 12,821  36.23  5
July-21 1,317  3.72  2
December-21 3,505  9.91  11
Total $35,384  100.00% 34
          


COVID-19 Deferred Loans by NAICS Industry (UNAUDITED) % of Deferred
Loans

 % of Gross
Portfolio Loans
(dollars in thousands) December 31, 2020 Number of Loans  
Real Estate Rental and Leasing $8,639  5 24.41% 0.57%
Accommodation and Food Services 17,210  5 48.64  1.14 
Arts, Entertainment, and Recreation 3,716  4 10.50  0.25 
Transportation and Warehousing 3,505  11 9.91  0.23 
Retail Trade 395  5 1.12  0.03 
Other Industries, Residential Mortgages and Consumer ** 1,919  4 5.42  0.13 
Total $35,384  34 100.00% 2.35%
** No NAICS code has been assigned.        
         

Allowance for loan losses ("ALLL") and provision for loan losses ("PLL")

Since December 31, 2019, the Company's general allowance increased reflecting economic uncertainty from the COVID-19 pandemic. ALLL levels increased to 1.29% of portfolio loans at December 31, 2020 compared to 0.75% at December 31, 2019. At and for the year ended December 31, 2020, the Company's ALLL increased $8.5 million or 77.5% to $19.4 million at December 31, 2020 from $10.9 million at December 31, 2019.

The Company recorded a $0.6 million and $10.7 million PLL for the three and twelve months ended December 31, 2020 compared to $0.8 million and $2.1 million for the three and twelve months ended December 31, 2019. During 2020, net charge-offs also increased from the prior year as we resolved several relationships that were substandard relationships prior to the pandemic. The Company's allowance methodology considers quantitative historical loss factors and qualitative factors to determine the estimated level of incurred losses in the Company's loan portfolios. The increased provision was primarily due to the economic effects of the COVID-19 pandemic and considered the potential impact of our loan payment deferral program. The current year growth in the commercial loan portfolios also contributed to provision expense.

Management believes that loans that were part of the COVID-19 deferral program in 2020 are more likely to default in the future and that the identification and resolution of problem credits could be delayed. In our evaluation of current and previously deferred loans, we considered the length of the deferral period, the type and amount of collateral and customer industries. Consistent with regulatory guidance, if new information during the deferral period indicates that there is evidence of default, the Bank may change the classification rating (e.g., change from passing credit to substandard) and accrual status (e.g., change from accrual to non-accrual status) as deemed appropriate. As of December 31, 2020, there were $3.4 million of COVID-19 deferred loans deemed to be non-accrual and substandard based on reviews.

Management believes that the allowance is adequate at December 31, 2020. The ALLL as a percent of total loans may increase or decrease in future periods based on the success or failure of economic recovery coming out of COVID-19 pandemic.

Non-Performing Assets

Classified assets decreased $12.3 million from $34.6 million at December 31, 2019 to $22.4 million at December 31, 2020. Management considers classified assets to be an important measure of asset quality. The Company's risk rating process for classified loans is an important input into the Company's allowance methodology. Risk ratings are expected to be an important indicator in assessing ongoing credit risks of COVID-19 deferred loans. During the year ended December 31, 2020, the Company offered COVID-19 deferrals to one substandard relationship that was current as of December 31, 2019. As of December 31, 2020 this relationship consisted of four loans totaling $3.4 million that were also considered non-accrual loans.

Non-accrual loans and OREO to total gross portfolio loans and OREO decreased 33 basis points from 1.75% at December 31, 2019 to 1.42% at December 31, 2020. Non-accrual loans, OREO and TDRs to total assets decreased 38 basis points from 1.46% at December 31, 2019 to 1.08% at December 31, 2020. Non-accrual loans increased $0.3 million from $17.9 million at December 31, 2019 to $18.2 million at December 31, 2020. Non-accrual loans of $6.3 million (34%) were current with all payments of principal and interest with specific reserves of $0.1 million at December 31, 2020. Delinquent non-accrual loans were $11.9 million (66%) with specific reserves of $1.3 million at December 31, 2020.

The OREO balance decreased $4.7 million from $7.8 million at December 31, 2019 to $3.1 million at December 31, 2020.

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 $2.0 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,” "probable" 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 any acquisition we have undertaking or that we undertake in the future; 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: risks, uncertainties and other factors relating to the COVID-19 pandemic (including the length of time that the pandemic continues, the ability of states and local governments to successfully implement the lifting of restrictions on movement and the potential imposition of further restrictions on movement and travel in the future, the effect of the pandemic on the general economy and on the businesses of our borrowers and their ability to make payments on their obligations; the remedial actions and stimulus measures adopted by federal, state and local governments, and the inability of employees to work due to illness, quarantine, or government mandates); the synergies and other expected financial benefits from any acquisition that we have undertaken or may undertake in the future; may not be realized within the expected time frames; changes in The Community Financial Corporation or Community Bank of the Chesapeake’s strategy, costs or difficulties related to integration matters which might be greater than expected; availability of and costs associated with obtaining adequate and timely sources of liquidity; the ability to maintain credit quality; 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 impact of government shutdowns or sequestration; the possibility of unforeseen events affecting the industry generally; the uncertainties associated with newly developed or acquired operations; the outcome of pending or threatened litigation, or of matters before regulatory agencies, whether currently existing or commencing in the future; 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, 2019, 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 December 31, 2020. 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, 2019.

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


SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED)
CONDENSED CONSOLIDATED INCOME STATEMENT

(dollars in thousands, except per share amounts)

 Three Months Ended
 December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019
Interest and Dividend Income          
Loans, including fees $16,776   $16,176  $16,277  $16,502   $16,565  
Interest and dividends on securities 1,091   1,269  1,341  1,469   1,508  
Interest on deposits with banks 46   38  20  68   206  
Total Interest and Dividend Income 17,913   17,483  17,638  18,039   18,279  
Interest Expense          
Deposits 1,166   1,534  1,937  3,044   3,777  
Short-term borrowings    14  28  69   65  
Long-term debt 775   567  449  573   724  
Total Interest Expense 1,941   2,115  2,414  3,686   4,566  
Net Interest Income ("NII") 15,972   15,368  15,224  14,353   13,713  
Provision for loan losses 600   2,500  3,500  4,100   805  
NII After Provision For Loan Losses 15,372   12,868  11,724  10,253   12,908  
Noninterest Income          
Loan appraisal, credit, and miscellaneous charges 76   49  35  14   131  
Gain on sale of asset    6         
Net gains on sale of investment securities 714   229  112  329   226  
Unrealized gains (losses) on equity securities (14)    40  75   (22) 
Loss on premises and equipment held for sale           (1) 
Income from bank owned life insurance 220   222  220  219   223  
Service charges 960   839  709  982   916  
Referral fee income 414   321  1,143  502   740  
Total Noninterest Income 2,370   1,666  2,259  2,121   2,213  
Noninterest Expense          
Compensation and benefits 4,552   5,099  4,714  5,188   5,408  
OREO valuation allowance and expenses 897   421  1,100  782   212  
Sub Total 5,449   5,520  5,814  5,970   5,620  
Operating Expenses          
Occupancy expense 806   734  736  734   812  
Advertising 145   129  130  121   152  
Data processing expense 829   990  924  928   780  
Professional fees 658   652  477  626   649  
Depreciation of premises and equipment 154   142  151  158   165  
Telephone communications 49   43  53  43   39  
Office supplies 28   31  30  31   45  
FDIC Insurance 260   249  260  170   (3) 
Core deposit intangible amortization 139   144  151  157   163  
Other 955   817  671  745   1,066  
Total Operating Expenses 4,023   3,931  3,583  3,713   3,868  
Total Noninterest Expense 9,472   9,451  9,397  9,683   9,488  
Income before income taxes 8,270   5,083  4,586  2,691   5,633  
Income tax expense 2,131   1,284  1,136  (57)  1,558  
Net Income $6,139   $3,799  $3,450  $2,748   $4,075  
                        

SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED) - Continued
CONDENSED CONSOLIDATED BALANCE SHEETS

          (Audited)
(dollars in thousands, except per share amounts) December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019
Assets          
Cash and due from banks $56,887   $93,130   $103,914   $15,498   $25,065  
Federal funds sold    69,431   29,456        
Interest-bearing deposits with banks 20,178   25,132   13,051   10,344   7,404  
Securities available for sale ("AFS"), at fair value 246,105   229,620   234,982   214,163   208,187  
Equity securities carried at fair value through income 4,855   4,851   4,831   4,768   4,669  
Non-marketable equity securities held in other financial institutions 207   209   209   209   209  
Federal Home Loan Bank ("FHLB") stock - at cost 2,777   3,415   4,691   5,627   3,447  
Net U.S. Small Business Administration ("SBA") Paycheck Protection ("PPP") Loans 107,960   127,811   125,638        
Portfolio Loans Receivable net of allowance for loan losses of $19,424, $18,829, $16,319, $15,061, and $10,942 1,486,115   1,479,313   1,478,498   1,477,087   1,445,109  
Net Loans 1,594,075   1,607,124   1,604,136   1,477,087   1,445,109  
Goodwill 10,835   10,835   10,835   10,835   10,835  
Premises and equipment, net 20,271   20,671   20,972   21,305   21,662  
Premises and equipment held for sale 430   430   430   430   430  
Other real estate owned ("OREO") 3,109   3,998   3,695   6,338   7,773  
Accrued interest receivable 8,717   8,975   6,773   5,077   5,019  
Investment in bank owned life insurance 38,061   37,841   37,619   37,399   37,180  
Core deposit intangible 1,527   1,666   1,810   1,961   2,118  
Net deferred tax assets 7,909   7,307   6,565   6,421   6,168  
Right of use assets - operating leases 7,831   8,005   8,132   8,257   8,382  
Other assets 2,665   4,797   1,655   902   3,879  
Total Assets $2,026,439   $2,137,437   $2,093,756   $1,826,621   $1,797,536  
Liabilities and Stockholders' Equity          
Liabilities          
Deposits          
Noninterest-bearing deposits $362,079   $360,839   $356,196   $254,114   $241,174  
Interest-bearing deposits 1,383,523   1,418,767   1,314,168   1,258,475   1,270,663  
Total deposits 1,745,602   1,779,606   1,670,364   1,512,589   1,511,837  
Short-term borrowings       5,000   27,000   5,000  
Long-term debt 27,302   42,319   67,336   67,353   40,370  
Paycheck Protection Program Liquidity Facility ("PPPLF") Advance    85,893   126,801        
Guaranteed preferred beneficial interest in junior subordinated debentures ("TRUPs") 12,000   12,000   12,000   12,000   12,000  
Subordinated notes - 4.75% and 6.25% 19,526            23,000  
Lease liabilities - operating leases 8,088   8,193   8,296   8,397   8,495  
Accrued expenses and other liabilities 15,908   16,576   14,517   14,015   15,340  
Total Liabilities 1,828,426   1,944,587   1,904,314   1,641,354   1,616,042  
Stockholders' Equity          
Common stock 59   59   59   59   59  
Additional paid in capital 95,965   95,799   95,687   95,581   95,474  
Retained earnings 97,944   92,814   89,781   87,070   85,059  
Accumulated other comprehensive income 4,504   4,780   4,517   3,159   1,504  
Unearned ESOP shares (459)  (602)  (602)  (602)  (602) 
Total Stockholders' Equity 198,013   192,850   189,442   185,267   181,494  
Total Liabilities and Stockholders' Equity $2,026,439   $2,137,437   $2,093,756   $1,826,621   $1,797,536  
           
Common shares issued and outstanding 5,903,613   5,911,940   5,911,715   5,910,064   5,900,249  
                     

SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED) - Continued
SELECTED FINANCIAL INFORMATION AND RATIOS

(dollars in thousands, except per share amounts)
 Three Months Ended
 December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019
KEY OPERATING RATIOS          
Return on average assets ("ROAA") 1.18% 0.73% 0.69% 0.61% 0.91%
Pre-tax Pre-Provision ROAA** 1.71  1.46  1.62  1.51  1.43 
Return on average common equity ("ROACE") 12.51  7.86  7.27  6.00  9.58 
Pre-tax Pre-Provision ROACE** 18.08  15.69  17.03  14.82  15.14 
Average total equity to average total assets 9.46  9.33  9.52  10.20  9.46 
Interest rate spread 3.29  3.15  3.21  3.21  3.05 
Net interest margin 3.40  3.27  3.34  3.43  3.29 
Cost of funds 0.42  0.46  0.54  0.93  1.14 
Cost of deposits 0.26  0.37  0.48  0.82  1.00 
Cost of debt 3.45  1.16  1.06  2.61  3.19 
Efficiency ratio 51.64  55.48  53.75  58.78  59.58 
Noninterest expense to average assets 1.83  1.82  1.88  2.15  2.11 
Net operating expense to average assets 1.37  1.50  1.43  1.68  1.62 
Avg. int-earning assets to avg. int-bearing liabilities 126.18  125.40  125.51  124.44  122.50 
Net charge-offs to average portfolio loans     0.61    0.32 
COMMON SHARE DATA          
Basic net income per common share $1.04  $0.64  $0.59  $0.47  $0.73 
Diluted net income per common share 1.04  0.64  0.59  0.47  0.73 
Cash dividends paid per common share 0.125  0.125  0.125  0.125  0.125 
Weighted average common shares outstanding:          
Basic 5,892,751  5,895,074  5,894,009  5,886,981  5,563,455 
Diluted 5,894,494  5,895,074  5,894,009  5,886,981  5,563,455 
ASSET QUALITY          
Total assets $2,026,439  $2,137,437  $2,093,756  $1,826,621  $1,797,536 
Gross portfolio loans (1) 1,504,275  1,496,532  1,492,745  1,490,089  1,454,172 
Classified assets 22,358  24,600  25,115  33,489  34,636 
Allowance for loan losses 19,424  18,829  16,319  15,061  10,942 
Past due loans - 31 to 89 days 179  838  5,843  7,921  549 
Past due loans >=90 days 12,144  17,230  20,072  12,877  12,778 
Total past due loans (2) (3) 12,323  18,068  25,915  20,798  13,327 
           
Non-accrual loans (4) 18,222  20,148  22,896  16,349  17,857 
Accruing troubled debt restructures ("TDRs") 572  573  593  641  650 
Other real estate owned ("OREO") 3,109  3,998  3,695  6,338  7,773 
Non-accrual loans, OREO and TDRs $21,903  $24,719  $27,184  $23,328  $26,280 

** Non-GAAP financial measure. See reconciliation of GAAP and NON-GAAP measures.
____________________________________

(1)Portfolio loans include all loan portfolios except the U.S. SBA PPP loan portfolio. Asset quality ratios for loans exclude U.S. SBA PPP loans.
(2)Delinquency excludes Purchase Credit Impaired ("PCI") loans.
(3)As of January 31, 2021 there were zero loans that were reported as delinquent as of December 31, 2020 with approved COVID-19 loan deferrals not yet completed.
(4)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. At December 31, 2020 and December 31, 2019, the Company had current non-accrual loans of $6.3 million and $5.1 million, respectively.
  

SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED) - Continued
SELECTED FINANCIAL INFORMATION AND RATIOS

(dollars in thousands, except per share amounts)
 Three Months Ended
 December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019
ASSET QUALITY RATIOS (1)          
Classified assets to total assets 1.10% 1.15% 1.20% 1.83% 1.93%
Classified assets to risk-based capital 9.61  11.89  12.49  17.00  16.21 
Allowance for loan losses to portfolio loans 1.29  1.26  1.09  1.01  0.75 
Allowance for loan losses to non-accrual loans 106.60  93.45  71.27  92.12  61.28 
Past due loans - 31 to 89 days to portfolio loans 0.01  0.06  0.39  0.53  0.04 
Past due loans >=90 days to portfolio loans 0.81  1.15  1.34  0.86  0.88 
Total past due (delinquency) to portfolio loans 0.82  1.21  1.74  1.40  0.92 
Non-accrual loans to portfolio loans 1.21  1.35  1.53  1.10  1.23 
Non-accrual loans and TDRs to portfolio loans 1.25  1.38  1.57  1.14  1.27 
Non-accrual loans and OREO to total assets 1.05  1.13  1.27  1.24  1.43 
Non-accrual loans and OREO to portfolio loans and OREO 1.42  1.61  1.78  1.52  1.75 
Non-accrual loans, OREO and TDRs to total assets 1.08  1.16  1.30  1.28  1.46 
COMMON SHARE DATA          
Book value per common share $33.54  $32.62  $32.05  $31.35  $30.76 
Tangible book value per common share** 31.45  30.51  29.91  29.18  28.57 
Common shares outstanding at end of period 5,903,613  5,911,940  5,911,715  5,910,064  5,900,249 
OTHER DATA          
Full-time equivalent employees 189 189 194 196 194
Branches 12 12 12 12 12
Loan Production Offices 4 4 4 4 5
CAPITAL RATIOS          
Tier 1 capital to average assets 9.56% 9.73% 9.76% 10.20% 10.08%
Tier 1 common capital to risk-weighted assets 11.47  11.11  11.12  11.04  11.11 
Tier 1 capital to risk-weighted assets 12.23  11.87  11.89  11.82  11.91 
Total risk-based capital to risk-weighted assets 14.69  13.06  12.94  12.80  14.16 
Common equity to assets 9.77  9.02  9.05  10.14  10.10 
Tangible common equity to tangible assets ** 9.22  8.49  8.50  9.51  9.44 

** Non-GAAP financial measure. See reconciliation of GAAP and NON-GAAP measures.
____________________________________

(1)Asset quality ratios are calculated using total portfolio loans. Portfolio loans include all loan portfolios except the U.S. SBA PPP loan portfolio.
  

SUPPLEMENTAL YEAR TO DATE FINANCIAL DATA (UNAUDITED)
CONDENSED CONSOLIDATED INCOME STATEMENT

        (Audited)
(dollars in thousands, except per share amounts)
 Three Months Ended December 31, Years Ended December 31,
 2020 2019 2020 2019
Interest and Dividend Income        
Loans, including fees $16,776   $16,565   $65,731  $65,602  
Interest and dividends on securities 1,091   1,508   5,170  6,414  
Interest on deposits with banks 46   206   172  437  
Total Interest and Dividend Income 17,913   18,279   71,073  72,453  
Interest Expense        
Deposits 1,166   3,777   7,681  15,378  
Short-term borrowings    65   111  774  
Long-term debt 775   724   2,364  2,767  
Total Interest Expense 1,941   4,566   10,156  18,919  
Net Interest Income ("NII") 15,972   13,713   60,917  53,534  
Provision for loan losses 600   805   10,700  2,130  
NII After Provision For Loan Losses 15,372   12,908   50,217  51,404  
Noninterest Income        
Loan appraisal, credit, and misc. charges 76   131   174  335  
Gain on sale of assets       6    
Net gains on sale of investment securities 714   226   1,384  226  
Unrealized gains (losses) on equity securities (14)  (22)  101  134  
Loss on premises and equipment held for sale    (1)    (1) 
Income from bank owned life insurance 220   223   881  885  
Service charges 960   916   3,490  3,308  
Referral fee income 414   740   2,380  879  
Total Noninterest Income 2,370   2,213   8,416  5,766  
Noninterest Expense        
Compensation and benefits 4,552   5,408   19,553  20,445  
OREO valuation allowance and expenses 897   212   3,200  963  
Sub-total 5,449   5,620   22,753  21,408  
Operating Expense        
Occupancy expense 806   812   3,010  3,101  
Advertising 145   152   525  762  
Data processing expense 829   780   3,671  3,048  
Professional fees 658   649   2,413  2,196  
Depreciation of premises and equipment 154   165   605  685  
Telephone communications 49   39   188  203  
Office supplies 28   45   120  149  
FDIC Insurance 260   (3)  939  334  
Core deposit intangible amortization 139   163   591  688  
Other 955   1,066   3,188  3,659  
Total Operating Expense 4,023   3,868   15,250  14,825  
Total Noninterest Expense 9,472   9,488   38,003  36,233  
Income before income taxes 8,270   5,633   20,630  20,937  
Income tax expense 2,131   1,558   4,494  5,665  
Net Income $6,139   $4,075   $16,136  $15,272  
                    

SUPPLEMENTAL YEAR TO DATE FINANCIAL DATA (UNAUDITED)

  Year Ended December 31,
  2020 2019
KEY OPERATING RATIOS    
Return on average assets ("ROAA") 0.81% 0.88%
Pre-tax Pre-Provision ROAA** 1.58  1.32 
Return on average common equity ("ROACE") 8.46  9.32 
Pre-tax Pre-Provision ROACE** 16.43  14.07 
Average total equity to average total assets 9.61  9.40 
Interest rate spread 3.22  3.06 
Net interest margin 3.36  3.31 
Cost of funds 0.57  1.22 
Cost of deposits 0.47  1.06 
Cost of debt 1.74  3.59 
Efficiency ratio 54.81  61.10 
Noninterest expense to average assets 1.91  2.08 
Net operating expense to average assets 1.49  1.75 
Avg. int-earning assets to avg. int-bearing liabilities 125.41  121.62 
Net charge-offs to average portfolio loans (1) 0.15  0.16 
COMMON SHARE DATA    
Basic net income per common share $2.74  $2.75 
Diluted net income per common share 2.74  2.75 
Cash dividends paid per common share 0.50  0.50 
Weighted average common shares outstanding:    
Basic 5,892,269  5,560,588 
Diluted 5,893,559  5,560,588 

____________________________________
** Non-GAAP financial measure. See reconciliation of GAAP and NON-GAAP measures.

(1)Asset quality ratios are calculated using total portfolio loans. Portfolio loans include all loan portfolios except the U.S. SBA PPP loan portfolio.
  

RECONCILIATION OF NON-GAAP MEASURES (UNAUDITED)

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.

(dollars in thousands, except per share amounts) December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019
Total assets $2,026,439  $2,137,437  $2,093,756  $1,826,621  $1,797,536 
Less: Intangible assets          
Goodwill 10,835  10,835  10,835  10,835  10,835 
Core deposit intangible 1,527  1,666  1,810  1,961  2,118 
Total intangible assets 12,362  12,501  12,645  12,796  12,953 
Tangible assets $2,014,077  $2,124,936  $2,081,111  $1,813,825  $1,784,583 
           
Total common equity $198,013  $192,850  $189,442  $185,267  $181,494 
Less: Intangible assets 12,362  12,501  12,645  12,796  12,953 
Tangible common equity $185,651  $180,349  $176,797  $172,471  $168,541 
           
Common shares outstanding at end of period 5,903,613  5,911,940  5,911,715  5,910,064  5,900,249 
           
GAAP common equity to assets 9.77% 9.02% 9.05% 10.14% 10.10%
Non-GAAP tangible common equity to tangible assets 9.22% 8.49% 8.50% 9.51% 9.44%
           
GAAP common book value per share $33.54  $32.62  $32.05  $31.35  $30.76 
Non-GAAP tangible common book value per share $31.45  $30.51  $29.91  $29.18  $28.57 
                     

RECONCILIATION OF NON-GAAP MEASURES (UNAUDITED)

Pre-Tax Pre-Provision ("PTPP") Income, PTPP Return on Average Assets ("ROAA") and PTPP Return on Average Common Equity ("ROACE")

We believe that pre-tax pre-provision income, which reflects our profitability before income taxes and loan loss provisions, allows investors to better assess our operating income and expenses in relation to our core operating revenue by removing the volatility that is associated with credit provisions and different state income tax rates for comparable institutions. We also believe that during a crisis such as the COVID-19 pandemic, this information is useful as the impact of the pandemic on the loan loss provisions of various institutions will likely vary based on the geography of the communities served by a particular institution.

  Three Months Ended For the Year Ended
(dollars in thousands) December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019 December 31, 2020 December 31, 2019
Net income (as reported) $6,139  $3,799  $3,450  $2,748   $4,075  $16,136  $15,272 
Provision for loan losses 600  2,500  3,500  4,100   805  10,700  2,130 
Income tax expenses 2,131  1,284  1,136  (57)  1,558  4,494  5,665 
Non-GAAP PTPP income $8,870  $7,583  $8,086  $6,791   $6,438  $31,330  $23,067 
               
GAAP ROAA 1.18% 0.73% 0.69% 0.61 % 0.91% 0.81% 0.88%
Pre-tax Pre-Provision ROAA 1.71% 1.46% 1.62% 1.51 % 1.43% 1.58% 1.32%
               
GAAP ROACE 12.51% 7.86% 7.27% 6.00 % 9.58% 8.46% 9.32%
Pre-tax Pre-Provision ROACE 18.08% 15.69% 17.03% 14.82 % 15.14% 16.43% 14.07%
               
Average assets $2,074,707  $2,071,487  $1,995,552  $1,797,426   $1,797,182  $1,985,275  $1,743,448 
Average equity $196,279  $193,351  $189,890  $183,272   $170,058  $190,720  $163,936 
                              

AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME (UNAUDITED)

  Three Months Ended December 31, For the Three Months Ended
  2020 2019 December 31, 2020 September 30, 2020
(dollars in thousands) Average
Balance
 Interest Average
Yield/Cost
 Average
Balance
 Interest Average
Yield/Cost
 Average
Balance
 Interest Average
Yield/Cost
 Average
Balance
 Interest Average
Yield/Cost
Assets                        
Interest-earning assets:                        
Commercial real estate $1,027,831  $10,833  4.22% $939,570  $11,044  4.70% $1,027,831  $10,833  4.22% $1,006,436  $10,627  4.22%
Residential first mortgages 140,303  1,132  3.23  166,448  1,457  3.50  140,303  1,132  3.23  157,039  1,188  3.03 
Residential rentals 134,564  1,468  4.36  119,851  1,485  4.96  134,564  1,468  4.36  132,572  1,499  4.52 
Construction and land development 35,910  435  4.85  32,707  468  5.72  35,910  435  4.85  38,861  448  4.61 
Home equity and second mortgages 30,045  268  3.57  36,102  477  5.29  30,045  268  3.57  32,670  295  3.61 
Commercial and equipment loans 107,245  1,320  4.92  125,272  1,620  5.17  107,245  1,320  4.92  116,472  1,205  4.14 
SBA PPP loans 120,473  1,308  4.34        120,473  1,308  4.34  127,092  902  2.84 
Consumer loans 1,058  12  4.54  1,020  14  5.49  1,058  12  4.54  1,102  12  4.36 
Allowance for loan losses (19,138)     (11,472)     (19,138)     (16,738)    
Net loans (1) $1,578,291  $16,776  4.25  1,409,498  16,565  4.70  1,578,291  16,776  4.25  1,595,506  16,176  4.06 
Taxable investment securities 211,101  978  1.85  218,741  1,508  2.76  211,101  978  1.85  218,305  1,143  2.09 
Nontaxable investment securities 20,378  113  2.22        20,378  113  2.22  23,633  126  2.13 
Interest-bearing deposits in other banks 28,970  23  0.32  25,087  133  2.12  28,970  23  0.32  24,713  25  0.40 
Federal funds sold 42,841  23  0.21  12,846  73  2.27  42,841  23  0.21  20,561  13  0.25 
Total Interest-Earning Assets 1,881,581  17,913  3.81  1,666,172  18,279  4.39  1,881,581  17,913  3.81  1,882,718  17,483  3.71 
Cash and cash equivalents 88,963      27,808      88,963      87,895     
Goodwill 10,835      10,835      10,835      10,835     
Core deposit intangible 1,617      2,224      1,617      1,761     
Other assets 91,711      90,143      91,711      88,278     
Total Assets $2,074,707      $1,797,182      $2,074,707      $2,071,487     
                         
Liabilities and Stockholders' Equity                        
Noninterest-bearing demand deposits $366,726  $  % $243,728  $  % $366,726  $  % $351,951  $  %
Interest-bearing liabilities:                        
Savings 96,529  17  0.07  68,855  17  0.10  96,529  17  0.07  89,036  20  0.09 
Interest-bearing demand and money market accounts 948,449  268  0.11  771,542  1,785  0.93  948,449  268  0.11  848,981  313  0.15 
Certificates of deposit 356,261  881  0.99  420,877  1,975  1.88  356,261  881  0.99  363,296  1,201  1.32 
Total interest-bearing deposits 1,401,239  1,166  0.33  1,261,274  3,777  1.20  1,401,239  1,166  0.33  1,301,313  1,534  0.47 
Total Deposits 1,767,965  1,166  0.26  1,505,002  3,777  1.00  1,767,965  1,166  0.26  1,653,264  1,534  0.37 
Long-term debt 28,341  457  6.45  49,343  229  1.86  28,341  457  6.45  63,847  380  2.38 
Short-term debt       14,565  65  1.79        3,159  14  1.77 
PPPLF Advance 32,677  29  0.35        32,677  29  0.35  121,070  107  0.35 
Subordinated Notes 16,888  211  5.00  23,000  359  6.24  16,888  211  5.00       
Guaranteed preferred beneficial interest in junior subordinated debentures 12,000  78  2.60  12,000  136  4.53  12,000  78  2.60  12,000  80  2.67 
Total Debt 89,906  775  3.45  98,908  789  3.19  89,906  775  3.45  200,076  581  1.16 
Total Interest-Bearing Liabilities 1,491,145  1,941    1,360,182  4,566    1,491,145  1,941    1,501,389  2,115   
Total Funds 1,857,871  1,941    1,603,910  4,566    1,857,871  1,941    1,853,340  2,115   
Other liabilities 20,557      23,214      20,557      24,796     
Stockholders' equity 196,279      170,058      196,279      193,351     
Total Liabilities and Stockholders' Equity $2,074,707    �� $1,797,182      $2,074,707      $2,071,487     
                         
Net interest income   $15,972      $13,713      $15,972      $15,368   
                         
Interest rate spread     3.29%     3.05%     3.29%     3.15%
Net yield on interest-earning assets     3.40%     3.29%     3.40%     3.27%
Average interest-earning assets to average interest bearing liabilities     126.18%     122.50%     126.18%     125.40%
Average loans to average deposits     89.27%     93.65%     89.27%     96.51%
Average transaction deposits to total average deposits **     79.85%     72.03%     79.85%     78.03%
                         
Cost of funds     0.42%     1.14%     0.42%     0.46%
Cost of deposits     0.26%     1.00%     0.26%     0.37%
Cost of debt     3.45%     3.19%     3.45%     1.16%

(1) Loan average balance includes non-accrual loans. There are no tax equivalency adjustments. There was $96,000, $240,000 and $111,000 of accretion interest for the three months ended December 31, 2020 and 2019, and September 30, 2020, respectively.

** Transaction deposits exclude time deposits.

AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME (UNAUDITED)

  For the Years Ended December 31,
  2020 2019
(dollars in thousands) Average
Balance
 Interest Average
Yield/Cost
 Average
Balance
 Interest Average
Yield/Cost
Assets            
Interest-earning assets:            
Commercial real estate $993,478   $43,239  4.35% $912,954   $43,016  4.71%
Residential first mortgages 159,265   5,229  3.28  159,702   5,840  3.66 
Residential rentals 132,524   5,841  4.41  121,912   6,186  5.07 
Construction and land development 37,930   1,795  4.73  32,590   1,897  5.82 
Home equity and second mortgages 33,458   1,334  3.99  36,330   2,066  5.69 
Commercial and equipment loans 113,886   5,539  4.86  118,399   6,538  5.52 
SBA PPP loans 90,345   2,704  2.99        
Consumer loans 1,099   50  4.55  920   59  6.41 
Allowance for loan losses (15,681)      (11,170)     
Net loans (1) $1,546,304   $65,731  4.25  $1,371,637   $65,602  4.78 
Taxable investment securities 214,187   4,832  2.26  227,693   6,414  2.82 
Nontaxable investment securities 14,214   338  2.38        
Interest-bearing deposits in other banks 19,444   110  0.57  8,719   237  2.72 
Federal funds sold 20,890   62  0.30  7,577   200  2.64 
Total Interest-Earning Assets 1,815,039   71,073  3.92  1,615,626   72,453  4.48 
Cash and cash equivalents 68,651       23,044      
Goodwill 10,835       10,835      
Core deposit intangible 1,837       2,479      
Other assets 88,913       91,464      
Total Assets $1,985,275       $1,743,448      
             
Liabilities and Stockholders' Equity            
Noninterest-bearing demand deposits $324,597   $  % $226,964   $  %
Interest-bearing liabilities:            
Savings 84,463   85  0.10  70,130   70  0.10 
Interest-bearing demand and money market accounts 850,023   2,386  0.28  710,709   6,771  0.95 
Certificates of deposit 370,743   5,210  1.41  448,924   8,537  1.90 
Total Interest-bearing deposits 1,305,229   7,681  0.59  1,229,763   15,378  1.25 
Total Deposits 1,629,826   7,681  0.47  1,456,727   15,378  1.06 
Debt:            
Long-term debt 53,615   1,373  2.56  32,702   743  2.27 
Short-term borrowings 8,156   111  1.36  30,965   774  2.50 
PPPLF Advances 60,360   211  0.35        
Subordinated Notes 7,953   395  4.97  23,000   1,438  6.25 
Guaranteed preferred beneficial interest in junior subordinated debentures 12,000   385  3.21  12,000   586  4.88 
Total Debt 142,084   2,475  1.74  98,667   3,541  3.59 
Total Interest-Bearing Liabilities 1,447,313   10,156  0.70  1,328,430   18,919  1.42 
Total funds 1,771,910   10,156    1,555,394   18,919   
Other liabilities 22,645       24,118      
Stockholders' equity 190,720       163,936      
Total Liabilities and Stockholders' Equity $1,985,275       $1,743,448      
             
Net interest income   $60,917      $53,534   
             
Interest rate spread     3.22%     3.06%
Net yield on interest-earning assets     3.36%     3.31%
Average interest-earning assets to average interest bearing liabilities     125.41%     121.62%
Average loans to average deposits     94.88%     94.16%
Average transaction deposits to total average deposits **     77.25%     69.18%
             
Cost of funds     0.57%     1.22%
Cost of deposits     0.47%     1.06%
Cost of debt     1.74%     3.59%

(1) Loan average balance includes non-accrual loans. There are no tax equivalency adjustments. There was $0.6 million and $0.9 million of accretion interest years ended December 31, 2020 and 2019, respectively.

** Transaction deposits exclude time deposits.

SUMMARY OF LOAN PORTFOLIO (UNAUDITED)
(dollars in thousands)

BY LOAN TYPE December 31, 2020 % September 30, 2020 % June 30, 2020 % March 31, 2020 % December 31, 2019 %
Portfolio Type:                    
Commercial real estate $1,049,147   69.75 % $1,021,987   68.29 % $996,111   66.73 % $977,678   65.61 % $964,777   66.34 %
Residential first mortgages 133,779   8.89   147,756   9.87   165,670   11.10   170,795   11.46   167,710   11.53  
Residential rentals 139,059   9.24   137,950   9.22   132,590   8.88   133,016   8.93   123,601   8.50  
Construction and land development 37,520   2.49   36,061   2.41   37,580   2.52   38,627   2.59   34,133   2.35  
Home equity and second mortgages 29,129   1.94   31,427   2.10   33,873   2.27   35,937   2.41   36,098   2.48  
Commercial loans 52,921   3.52   58,894   3.94   63,249   4.24   70,971   4.76   63,102   4.34  
Consumer loans 1,027   0.07   1,081   0.07   1,117   0.07   1,134   0.08   1,104   0.08  
Commercial equipment 61,693   4.10   61,376   4.10   62,555   4.19   61,931   4.16   63,647   4.38  
Gross portfolio loans 1,504,275   100.00 % 1,496,532   100.00 % 1,492,745   100.00 % 1,490,089   100.00 % 1,454,172   100.00 %
Net deferred costs 1,264   0.08 % 1,610   0.11 % 2,072   0.14 % 2,059   0.14 % 1,879   0.13 %
Allowance for loan losses (19,424)  (1.29)% (18,829)  (1.26)% (16,319)  (1.09)% (15,061)  (1.01)% (10,942)  (0.75)%
  (18,160)    (17,219)    (14,247)    (13,002)    (9,063)   
Net portfolio loans $1,486,115     $1,479,313     $1,478,498     $1,477,087     $1,445,109    
                     
U.S. SBA PPP loans $110,320     $131,088     $129,384     $     $    
Net deferred fees (2,360)    (3,277)    (3,746)             
Net SBA PPP loans $107,960     $127,811     $125,638     $     $    
                     
Total net loans $1,594,075     $1,607,124     $1,604,136     $1,477,087     $1,445,109    
                     
Gross loans $1,614,595     $1,627,620     $1,622,129     $1,490,089     $1,454,172    
                                    

END OF PERIOD CONTRACTUAL RATES (UNAUDITED)

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:

  December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019
(dollars in thousands) EOP Contractual Interest rate EOP Contractual Interest rate EOP Contractual Interest rate EOP Contractual Interest rate EOP Contractual Interest rate
Commercial real estate 4.11% 4.20% 4.32% 4.52% 4.59%
Residential first mortgages 3.93% 3.93% 3.93% 3.93% 3.95%
Residential rentals 4.26% 4.30% 4.45% 4.69% 4.79%
Construction and land development 4.28% 4.40% 4.46% 5.02% 5.12%
Home equity and second mortgages 3.54% 3.56% 3.56% 4.89% 4.90%
Commercial loans 4.56% 4.51% 4.53% 4.92% 5.26%
Consumer loans 5.99% 5.94% 6.05% 6.17% 6.25%
Commercial equipment 4.42% 4.42% 4.44% 4.46% 4.49%
U.S. SBA PPP loans 1.00% 1.00% 1.00% % %
Total Loans 3.92 % 3.94 % 4.03 % 4.51 % 4.58 %
           
Yields without U.S. SBA PPP Loans 4.13 % 4.20 % 4.29 % — % — %
                

ALLOWANCE FOR LOAN LOSSES (UNAUDITED)

  Three Months Ended
(dollars in thousands) December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019
Beginning of period $18,829   $16,319   $15,061   $10,942  $11,252  
           
Charge-offs (30)  (65)  (2,262)    (1,155) 
Recoveries 25   75   20   19  40  
Net charge-offs (5)  10   (2,242)  19  (1,115) 
           
Provision for loan losses 600   2,500   3,500   4,100  805  
End of period $19,424   $18,829   $16,319   $15,061  $10,942  
           
Net charge-offs to average portfolio loans (annualized)  %  % 0.61 % % 0.32 %
           
Breakdown of general and specific allowance as a percentage of gross portfolio loans(1)
General allowance $18,068   $18,319   $16,215   $13,412  $10,114  
Specific allowance 1,356   510   104   1,649  828  
  $19,424   $18,829   $16,319   $15,061  $10,942  
           
General allowance 1.20 % 1.22 % 1.09 % 0.90% 0.70 %
Specific allowance 0.09 % 0.03 % 0.01 % 0.11% 0.05 %
Allowance to gross portfolio loans 1.29 % 1.26 % 1.09 % 1.01% 0.75 %
           
Allowance to non-acquired gross portfolio loans 1.35 % 1.31 % 1.14 % 1.06% 0.79 %
           
Allowance+ Non-PCI FV Mark $20,174   $19,643   $17,208   $16,096  $12,128  
Allowance+ Non-PCI FV Mark to gross portfolio loans 1.34 % 1.31 % 1.15 % 1.08% 0.83 %

(1)   Portfolio loans include all loan portfolios except the U.S. SBA PPP loan portfolio. Asset quality ratios for loans exclude U.S. SBA PPP loans.


CLASSIFIED AND SPECIAL MENTION ASSETS (UNAUDITED)

The following is a breakdown of the Company’s classified and special mention assets at December 31, 2020, 2019, 2018, 2017 and 2016, respectively:

  As of
(dollars in thousands) 12/31/2020 12/31/2019 12/31/2018 12/31/2017 12/31/2016
Classified loans          
Substandard $19,249  $26,863  $32,226  $40,306  $30,463 
Doubtful         137 
Loss          
Total classified loans 19,249  26,863  32,226  40,306  30,600 
Special mention loans 7,672      96   
Total classified and special mention loans $26,921  $26,863  $32,226  $40,402  $30,600 
           
Classified loans $19,249  $26,863  $32,226  $40,306  $30,600 
Classified securities     482  651  883 
Other real estate owned 3,109  7,773  8,111  9,341  7,763 
Total classified assets $22,358  $34,636  $40,819  $50,298  $39,246 
           
Total classified assets as a percentage of total assets 1.10% 1.93% 2.42% 3.58% 2.94%
Total classified assets as a percentage of Risk Based Capital 9.61% 16.21% 21.54% 32.10% 26.13%
                

SUMMARY OF DEPOSITS (UNAUDITED)

  December 31, 2020 September 30, 2020 June 30, 2020 March 31, 2020 December 31, 2019
(dollars in thousands) Balance % Balance % Balance % Balance % Balance %
Noninterest-bearing demand $362,079  20.74% $360,839  20.28% $356,196  21.32% $254,114  16.80% $241,174  15.95%
Interest-bearing:                 
Demand 590,159  33.81  635,176  35.69  547,639  32.79  517,069  34.19  523,802  34.65 
Money market deposits 340,725  19.52  329,617  18.52  314,781  18.85  281,656  18.62  283,438  18.75 
Savings 98,783  5.66  90,514  5.09  85,257  5.10  73,874  4.88  69,254  4.58 
Certificates of deposit 353,856  20.27  363,460  20.42  366,491  21.94  385,876  25.51  394,169  26.07 
Total interest-bearing 1,383,523  79.26  1,418,767  79.72  1,314,168  78.68  1,258,475  83.20  1,270,663  84.05 
Total Deposits $1,745,602  100.00% $1,779,606  100.00% $1,670,364  100.00% $1,512,589  100.00% $1,511,837  100.00%
                     
Transaction accounts $1,391,746  79.73% $1,416,146  79.58% $1,303,873  78.06% $1,126,713  74.49% $1,117,668  73.93%