WALDORF, Md., Feb. 05, 2021 (GLOBE NEWSWIRE) -- The Community Financial Corporation (NASDAQ: TCFC), the holding company for Community Bank of the Chesapeake, 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

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.

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:

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		Posted in Investment Firms Recent Deals Interested in advertising your deals? Contact Edwin Warfield. Sponsored - Agency/Corporate Program David S. Brown Adds Michael Gosnell to Retail Leasing Team David S. Brown Enterprises has bolstered its Retail Leasing team with the recent hiring of Michael Gosnell Kennedy Krieger Institute Appoints John Campo VP of Psychiatric Services Kennedy Krieger Institute has announced the appointment of Dr. John Campo as Vice President of Psychiatric Services Pessin Katz Law Attorney Adam E. Konstas Selected To Member Pessin Katz Law is pleased to announce that Attorney Adam E. Konstas has been elected to Member Knollwood Life Plan Community Appoints Peter Loew as Director of Human Resources Knollwood, the premier life plan community of choice for those 62 and better in NW Washington, D.C., known for TRUSTED BY THESE PARTNERS: Connect with these Baltimore Professionals on LinkedIn Edwin Warfield Editor in Chief, Warfield Digital Connect Jean Halle Independent Consultant Connect Larry Lichtenauer President of Lawrence Howard & Associates Connect Newt Fowler Partner at Womble Carlyle, LLP Connect David Crowley Owner at Develop DC Connect Carolyn Stinson Stinson Marketing Group Connect Feature Your Profile Here Contact Our CEO, Edwin Warfield For partnerships, content marketing or advertising inquiries, please contact Edwin through his LinkedIn Profile Connect © Copyright 2024 citybuzz