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Actionable news in TCFC: The Community Financial Corporation,

The Community Financial Corporation Announces Results Of Operations For First Quarter Of 2016

The following excerpt is from the company's SEC filing.

WALDORF, Md., April 25, 2016 /PRNewswire/ -- 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 three months ended March 31, 2016. Consolidated net income available to common shareholders of $1.6 million or $0.35 per common share (diluted) for the three months ended March 31, 2016 increased $80,000 or $0.02 per common share (diluted) compared to the three months ended December 31, 2015. The Company increased income before income taxes $237,000 to $2.6 million for the three months ended March 31, 2016 from $2.4 million for the three months ended December 31, 2015.

Consolidated net income available to common shareholders of $1.6 million for the three months ended March 31, 2016 decreased $190,000 compared to the three months ended March 31, 2015. Earnings per common share (diluted) at $0.35 decreased $0.03 from $0.38 per common share (diluted) for the three months ended March 31, 2015. Consolidated net income reflects the stability of core earnings while absorbing the impact of the 2015 subordinated debt offering that replaced SBLF preferred stock.

"In our first quarter, loan growth was strong. Average loans outstanding grew by over $30 million in the most recent quarter, and we are expecting the second quarter to be robust as well," stated William J. Pasenelli, President and Chief Executive Officer. "Due to the continuing low interest rates and the effects on net interest margin, we are focusing on restructuring our operations to reduce costs. In the first quarter of 2016, we completed a redesign of the entire branch system. This redesign, combined with the closure of our King George facility allowed us to reduce branch employees by 15% from 73 at March 31, 2015 to 62 at March 31, 2016. This was accomplished while preparing to open our downtown Fredericksburg location. We believe that the branch redesign preserves the high touch character of our customer experience while reducing costs. In 2016, the company will extend this level of review to other areas. To date, annualized savings of $1.2 million have been targeted, which should be realized over the next four quarters. We are continuing to review operations for other efficiencies. In addition to reducing expenses, earning asset growth, primarily in loans, will add to our operating leverage."

"Underpinning the stable core earnings is our strong loan growth and pipeline. In light of the continued low interest rate environment and dramatic shifts in customer banking habits through technology driven channels, management has proactively been reconfiguring the delivery systems over the last two years. This drives the efficiency of our customer service while providing enhanced services and products," stated Michael L. Middleton, Executive Chairman.

Operations – Three Months Ended March 31, 2016 compared to Three Months Ended December 31, 2015

Consolidated net income available to common shareholders of $1.6 million for the three months ended March 31, 2016 increased $80,000 compared to the three months ended December 31, 2015. This is attributable to increased net interest income of $45,000 and a reduction in noninterest expense of $316,000. These increases to net income were partially offset by an increase in the provision for loan losses of $65,000, decreased noninterest income of $59,000 and increased income tax expense of $157,000.

Net interest income increased $45,000 to $9.4 million for the three months ended March 31, 2016 compared to $9.3 million for the three months ended December 31, 2015. Net interest margin at 3.50% for the three months ended March 31, 2016 decreased 11 basis points from 3.61% for the three months ended December 31, 2015. The decrease in net interest margin from the prior quarter was the result of lower yields on loans and slightly higher cost and larger average balances on interest-bearing liabilities. The fourth quarter of 2015 had several loans positively impact net interest margin by returning to performing status from nonaccrual. This resulted in an increase of five basis points on net interest margin during the fourth quarter of 2015. The adjusted net interest margin would have been 3.56% for the fourth quarter of 2015. The Company's first quarter 2016 yields on loans and interest-earning assets were in line with management expectations. The Company expects slight net interest margin compression during the second quarter of 2016 based on its pipeline and plans to add additional residential mortgages and investments.

During the three months ended March 31, 2016, the Company's cost of funds was positively impacted by continuing to add transaction deposits and decreased by one basis point to 0.73% compared to 0.74% for the fourth quarter of 2015. Average transaction deposits, which include savings, money market, interest-bearing demand and non-interest bearing demand accounts, for the three months ended March 31, 2016 increased $11.1 million or 2.2% to $526.5 million compared to $515.4 million for the three months ended December 31, 2015. Average non-interest-bearing demand deposits increased $2.2 million to $133.0 million compared to the prior quarter.

Medium-term interest rates have fallen since the fourth quarter of 2015, with the ten year U.S. Treasury rate as of April 20, 2016 ending at 1.85%. This is down from 2.27% at December 31, 2015 and 2.17% at December 31, 2014. The five year U.S. Treasury rate as of April 20, 2016 was 1.32%. This is down from 1.76% at December 31, 2015 and 1.65% at December 31, 2014. These lower medium-term interest rates are due to economic weaknesses in the world economy. If treasury rates remain depressed in the 5 to 10 year range it will have a negative impact on the re-pricing of the loan portfolio and the pricing of new loans. The downward pressure on treasury rates had a positive impact on local deposit pricing through the first quarter of 2016.

Interest and dividend income increased by $104,000 to $11.3 million for the three months ended March 31, 2016 compared to $11.2 million for the three months ended December 31, 2015, primarily due to increased income from the growth in the average balance of loans and investments and increased investment yields partially offset by lower yields on loans. Interest income on loans increased $347,000 due to growth of $30.3 million in the average balance of loans from $888.8 million for the three months ended December 31, 2015 to $919.1 million for the three months ended March 31, 2016. Interest and dividend income on investments increased $59,000 during the first quarter of 2016 compared to the prior quarter as average interest-earning investment balances increased $6.6 million and average yields increased from 1.91% to 1.98%. Average loan yields declined 14 basis points from 4.73% for the three months ended December 31, 2015 to 4.59% for the three months ended March 31, 2016, which resulted in a decrease in interest income of $302,000. The decrease in loan yields compared to the prior quarter was impacted the most by the change in commercial real estate loan yields which decreased from 4.59% for the three months ended December 31, 2015 to 4.52% for the three months ended March 31, 2016. The balance of the impact was $118,000 of additional interest that was recognized in the fourth quarter of 2015 for loans that returned to performing status from nonaccrual which was primarily in the commercial loan portfolio.

Interest expense increased $59,000 to $1.9 million for the three months ended March 31, 2016 compared to the prior quarter due to an increase in the average balances of interest-bearing liabilities. During the three months ended March 31, 2016, interest expense increased $68,000 due to increased average balances of interest-bearing transaction deposit accounts, time deposits and short-term debt compared to the prior quarter. Debt costs increased $69,000 due to increased rates on long-term debt and short-term borrowings. The average rate paid on debt, which includes long-term debt, trust preferred junior subordinated debentures ("TRUPS"), subordinated notes, and short-term borrowings, declined from 2.78% for the three months ended December 31, 2015 to 2.71% for the three months ended March 31, 2016. The seven basis point decline in debt costs was due to the Company utilizing more short-term debt to finance operations during the first quarter of 2016 as long-term debt matured. These increases to interest expense were partially offset by a reduction in interest expense of $67,000 due to a $10.1 million decrease in average long-term debt balances from $62.0 million in the fourth quarter of 2015 to $51.9 million for the three months ended March 31, 2016. Additionally, interest expense decreased $11,000 as rates on interest-bearing deposit accounts decreased modestly from 0.56% to 0.55%.

The provision for loan losses increased $65,000 to $427,000 for the three months ended March 31, 2016 compared to $362,000 for the three months ended December 31, 2015. Net charge-offs for the current quarter increased $180,000 from $197,000 for the three months ended December 31, 2015 to $377,000 for the three months ended March 31, 2016. Improvements to baseline charge-off factors for the periods used to evaluate the adequacy of the allowance as well as improvements in some qualitative factors, such as reductions in classified assets and delinquency, were offset by increases in other qualitative factors, such as loan growth. The improvement in the base-line charge-off factors reflects more favorable loan loss experience during the five-year period ended March 31, 2016 than for the comparable period ended. Overall, these changes resulted in a higher provision for loan losses for the comparable periods. The specific allowance is based on management's estimate of realizable value for particular loans and has decreased as specific credits have been resolved through a return to performance, charge-offs and additions to other real estate owned.

Noninterest income decreased by $59,000 to $850,000 for the three months ended March 31, 2016 compared to $909,000 for the three months ended December 31, 2015 due to a small decrease in miscellaneous and loan fees compared to the prior quarter. Service charge income and income from bank owned life insurance were comparable to the prior period.

Noninterest expense of $7.2 million for the first quarter of 2016 decreased $316,000 from the fourth quarter of 2015. The current quarter decrease was primarily the result of a one-time a $200,000 expense that occurred in the fourth quarter of 2015 to reduce an insurance settlement claim receivable. The Company's noninterest expense, excluding OREO charges, was $6.9 million for the first quarter of 2016. The Company's average noninterest expense per quarter, excluding OREO charges and the settlement claim, was $6.8 million per quarter for the year ended December 31, 2015. In 2015, the Company incurred non-recurring expenses related to the initial implementation of risk management programs. During 2016, the Company is focused on reducing expenses by decreasing FTEs, reviewing vendor relationships and streamlining internal processes. The Company is cautiously optimistic that these cost cutting efforts and our continued asset growth will create operating leverage and increase both our return on average assets and return on equity over the next four quarters. The following is a summary breakdown of noninterest expense compared to the prior quarter:

(dollars in thousands)

$ Change

% Change

Compensation and Benefits

$ 4,152

$ 4,148

$ 4

OREO Valuation Allowance and Expenses

(20.2%)

Other Operating Expenses

(8.1%)

Total Noninterest Expense

$ 7,240

$ 7,556

$ (316)

(4.2%)

Operations – Three Months Ended March 31, 2016 compared to Three Months Ended March 31, 2015

Consolidated net income available to common shareholders of $1.6 million for the three months ended March 31, 2016 decreased $190,000 compared to the three months ended March 31, 2015. This is primarily attributable to an increase in the provision for loan losses of $249,000, increased noninterest expense of $297,000 and decreased noninterest income of $112,000. These decreases to net income were partially offset by increased net interest income of $330,000, decreased income tax expense of $115,000 and decreased preferred stock dividends of $23,000.

Net interest income increased $330,000 to $9.4 million for the three months ended March 31, 2016 compared to $9.1 million for the three months ended March 31, 2015. The net interest margin was 3.50% for the three months ended March 31, 2016, a 17 basis point decrease from 3.67% for the three months ended March 31, 2015. The decrease in net interest margin was largely the result of lower yields on loans, slightly higher funding costs and a full quarter of interest expense in the three months ended March 31, 2016 on the $23.0 million 6.25% subordinated notes issued during February 2015.

Interest and dividend income increased by $584,000 to $11.3 million for the three months ended March 31, 2016 compared to $10.7 million for the three months ended March 31, 2015, primarily due to increased income from the growth in the average balance of loans and investments and increased investment yields. Interest and dividend income on loans increased $759,000 due to growth of $66.2 million in the average balance of loans from $852.9 million for the three months ended March 31, 2015 to $919.1 million for the three months ended March 31, 2016. Interest and dividend income on investments increased $216,000 during the first quarter of 2016 compared to the same period in the prior year as average interest-earning investment balances increased $21.2 million and average yields increased from 1.65% to 1.98%. Average loan yields declined 18 basis points from 4.77% for the three months ended March 31, 2015 to 4.59% for the three months ended March 31, 2016, which resulted in a decrease in interest and dividend income of $391,000.

Interest expense increased $254,000 to $1.9 million for the three months ended March 31, 2016 compared to $1.7 million for the three months ended March 31, 2015, due to both an increase in the average balances of interest-bearing liabilities and a slight increase in funding costs. During the three months ended March 31, 2016, interest expense increased $144,000 due to the larger first quarter 2016 average balance of the subordinated notes issued in February 20015, and $93,000 due to increased average balances of interest-bearing transaction deposit accounts, time deposits and short-term debt compared to the same quarter of 2015. Additionally, interest expense increased $39,000 as rates on interest-bearing deposit accounts increased modestly from 0.54% to 0.55%. Debt costs increased $115,000 as the average rate paid on debt, which includes long-term debt, trust preferred junior subordinated debentures ("TRUPS"), subordinated notes, and short-term borrowings, increased from 2.45% for the three months ended March 31, 2015 to 2.71% for the comparable period in 2016. Interest expense for the three months ended March 31, 2016 were $156,000 greater than the comparable period as a result of the timing of the funding of the subordinated notes in February 2015. These increases to interest expense were partially offset by a reduction in interest expense of $137,000 due to a $20.6 million decrease in average long-term debt balances from the comparable period to $51.9 million for the three months ended March 31, 2016.

The Company continued to make progress in controlling overall deposit costs by increasing transaction deposits as a percentage of overall deposits. Average transaction accounts as a percentage of average total deposits increased from 54.7% for the three months ended March 31, 2015 to 57.0% for the three months ended March 31, 2016. Deposit costs at 0.47% were the same for the three months ended March 31, 2016 and 2015, respectively. Average transaction deposits, which include savings, money market, interest-bearing demand and noninterest bearing demand accounts, for the three months ended March 31, 2016 increased $67.8 million or 14.8% to $526.5 million compared to $458.7 million for the comparable period in 2015. The increase in average transaction deposits included growth in average noninterest bearing demand deposits of $21.0 million from $112.0 million for the three months ended March 31, 2015 to $133.0 million for the three months ended March 31, 2016.

The provision for loan losses increased $249,000 to $427,000 for the three months ended March 31, 2016 compared to $178,000 for the three months ended March 31, 2015. Net charge-offs for the quarter increased $339,000 from $38,000 for the three months ended March 31, 2015 to $377,000 for the three months ended March 31, 2016. Improvements to baseline charge-off factors for the periods used to evaluate the adequacy of the allowance as well as improvements in some qualitative factors, such as reductions in classified assets and delinquency, were offset by increases in other qualitative factors, such as loan growth. The improvement in the base-line charge-off factors reflects more favorable loan loss experience during the five-year period ended March 31, 2016 than for the comparable period ended. Overall, these changes resulted in a higher provision for loan losses for the comparable periods. The specific allowance is based on management's estimate of realizable value for particular loans and has decreased as specific credits have been resolved through a return to performance, charge-offs and additions to other real estate owned.

Noninterest income decreased by $112,000 to $850,000 for the three months ended March 31, 2016 compared to $962,000 for the three months ended March 31, 2015, primarily due to the Company's exit from residential loan originations during the second quarter of 2015. As a result, there were no gains on residential loans held for sale in the three months ended March 31, 2016 compared to $97,000 in the first quarter of 2015. Additionally, there were moderate decreases in the first quarter of 2016 in bank owned life insurance income compared to the prior year period.

For the three months ended March 31, 2016, noninterest expense increased 4.3%, or $297,000, to $7.2 million from $6.9 million for the comparable period in 2015. The Company's 2015 total growth in salary and benefit costs was 3.2%. During 2015, the Company controlled the growth of salary and benefit costs by significantly restructuring our branch organization and better aligning incentives with Company performance. The Company's noninterest expense as a percentage of average assets for the three months ended March 31, 2016 and 2015 were 2.51% and 2.61%, respectively. The following is a summary breakdown of noninterest expense:

$ 4,145

$ 7

$ 6,943

$ 297

Financial Condition at March 31, 2016 compared to December 31, 2015

Total assets at March 31, 2016 of $1.18 billion increased $33.6 million compared to total assets of $1.14 billion at December 31, 2015. The increase in total assets was primarily attributable to growth in securities and loans. Net loans increased $26.3 million from $909.2 million at December 31, 2015 to $935.5 million at March 31, 2016, mainly due to increases in loans for commercial real estate and residential first mortgages. The following is a breakdown of the Company's loan portfolio at March 31, 2016 and December 31, 2015:

Commercial real estate

$ 643,977

68.14%

$ 613,479

66.76%

Residential first mortgages

155,532

16.46%

149,967

16.32%

Construction and land development

38,687

36,189

Home equity and second mortgages

21,019

21,716

Commercial loans

54,220

67,246

Consumer loans

Commercial equipment

31,379

29,931

945,144

100.00%

918,894

Deferred loan fees

Allowance for loan losses

$ 935,499

$ 909,200

The Company has been working to reduce classified loans by using approaches that maximize the Company's contractual rights with each individual customer relationship. The objective is to move non-performing or substandard credits that are not likely to become performing or passing credits in a reasonable timeframe off the balance sheet. The Company is encouraging existing classified customers to obtain financing with other lenders or enforcing its contractual rights. Management believes this strategy is in the best long-term interest of the Company.

Management considers classified assets to be an important measure of asset quality. Classified assets have been trending downward the last several years as a percentage of total assets and risk-based regulatory capital and in total dollars from a high point of greater than $81.9 million at September 30, 2011. During the fourth quarter of 2015, the Company reduced classified loans $3.5 million to $32.8 million. Of the fourth quarter 2015 reduction in classified loans, $2.7 million was transferred to OREO. These properties include a 21 unit apartment building, 11 condo units and a commercial property. The Company is optimistic that these properties will be sold in the near term based on the current valuation, the existing market and tenant occupancy. During the three months ended March 31, 2016, the Company took a deed in lieu of foreclosure on a $2.1 million improved commercial office building with multiple tenants. This property was taken into OREO at the carrying value of the loan and is presently under contract in the feasibility study period. There is no expected loss from the disposal of this property. The following is a breakdown of the Company's classified and special mention assets at March 31, 2016 and December 31, 2015, 2014, 2013, 2012 and 2011, respectively:

Classified Assets and Special Mention Assets

As of

December 31, 2013

December 31, 2012

December 31, 2011

Classified loans

Substandard

$ 31,944

$ 31,943

$ 46,735

$ 47,645

$ 48,676

$ 68,515

Doubtful

Loss

Total classified loans

32,446

32,804

68,552

Special mention loans

Total classified and special mention loans

$ 32,446

$ 34,446

$ 52,195

$ 56,891

$ 54,768

$ 68,552

Classified securities

Other real estate owned

11,038

Total classified assets

$ 44,512

$ 43,346

$ 54,022

$ 56,880

$ 58,595

$ 79,638

Total classified assets as a

percentage of total assets

percentage of Risk Based Capital

30.79%

30.19%

39.30%

43.11%

59.02%

83.89%

Non-accrual loans (90 days or greater delinquent and non-accrual only loans) decreased $1.0 million from $11.4 million or 1.24% of total loans at December 31, 2015 to $10.4 million or 1.10% of total loans at March 31, 2016. Non-accrual only loans are loans classified as non-accrual due to customer operating results or payment history. In accordance with the Company's policy, interest income is recognized on a cash basis for these loans. The Company had 30 non-accrual loans at March 31, 2016 compared to 38 non-accrual loans at December 31, 2015. Non-accrual loans at March 31, 2016 included $7.6 million, or 75% of non-accrual loans, attributed to 17 loans representing six customer relationships classified as substandard. Non-accrual loans at December 31, 2015 included $8.1 million, or 71% of non-accrual loans, attributed to 19 loans representing six customer relationships classified as substandard. Of these loans at March 31, 2016 and December 31, 2015, $3.5 million and $3.8 million, respectively, represented a residential development project. During the second quarter of 2014, the Company deferred the collection of principal and interest on this project. The project is currently being built out with the support of private equity funds which have been used for vertical construction that has significantly improved the collateral value and the viability of the project. The Company's loans remain as troubled debt restructures ("TDRs") and non-accrual. In addition, at March 31, 2016 and December 31, 2015, the Company had three TDR loans totaling $1.6 million and $1.7 million, respectively, classified as non-accrual. These loans are classified solely as non-accrual loans for the calculation of financial ratios.

Loan delinquency (90 days or greater delinquent and 31-89 days delinquent) decreased $1.0 million from $11.7 million, or 1.27% of loans, at December 31, 2015 to $10.7 million, or 1.13% of loans, at March 31, 2016. Loans 31-89 days delinquent increased $35,000 from $948,000, or 0.10% of total loans, at December 31, 2015 to $983,000, or 0.10% of total loans, at March 31, 2016.

At March 31, 2016, the Company had 20 accruing TDRs totaling $12.3 million compared to 23 accruing TDRs totaling $13.1 million as of December 31, 2015. The Company had specific reserves of $1.0 million on seven TDRs totaling $3.3 million at March 31, 2016 and specific reserves of $1.3 million on nine TDRs totaling $3.6 million at December 31, 2015.

The following is a breakdown by loan classification of the Company's TDRs at March 31, 2016 and December 31, 2015:

Dollars

Number

of Loans

$ 11,395

$ 11,897

Total TDRs

$ 17,438

$ 18,568

Less: TDRs included in non-accrual loans

(5,111)

(5,435)

Total accrual TDR loans

$ 12,327

$ 13,133

The OREO balance was $11.0 million at March 31, 2016, an increase of $1.6 million compared to $9.4 million at December 31, 2015. This increase consisted of additions of $2.5 million offset by valuation allowances of $255,000 to adjust properties to current appraised values and $671,000 in disposals. OREO carrying amounts reflect management's estimate of the realizable value of these properties incorporating current appraised values, local real estate market conditions and related costs.

Non-accrual loans and OREO to total assets decreased one basis point from 1.83% at December 31, 2015 to 1.82% at March 31, 2016. Non-accrual loans, OREO and TDRs to total assets decreased 11 basis points from 2.98% at December 31, 2015 to 2.87% at March 31, 2016.

The allowance for loan losses was 0.91% of gross loans at March 31, 2016 and 0.93% at December 31, 2015. There was an increase in the general component of the allowance due to changes to general allowance factors that reflect changes in historical loss, delinquency rates and general economic conditions. Management's determination of the adequacy of the allowance is based on a periodic evaluation of the portfolio with consideration given to: overall loss experience; current economic conditions; size, growth and composition of the loan portfolio; financial condition of the borrowers; current appraised values of underlying collateral and other relevant factors that, in management's judgment, warrant recognition in determining an adequate allowance. Improvements to baseline charge-off factors for the periods used to evaluate the adequacy of the allowance as well as improvements in some qualitative factors, such as reductions in classified assets and delinquency, were offset by increases in other qualitative factors, such as loan growth. The specific allowance is based on management's estimate of realizable value for particular loans. Management believes that the allowance is adequate. The Company increased its general allowance as a percentage of gross loans two basis points from 0.75% at December 31, 2015 to 0.77% at March 31, 2016. The following is a breakdown of the Company's general and specific allowances as a percentage of gross loans at March 31, 2016 and December 31, 2015, respectively.

(dollar in thousands)

% of Gross

General Allowance

$ 7,303

$ 6,932

Specific Allowance

Total Allowance

$ 8,591

$ 8,540

The most important weighted factor in the Company's allowance for loan loss methodology is the charge-off history of the loan portfolio. The historical loss experience factor is tracked over various time horizons for each portfolio segment. It is weighted as the most important factor of the general component of the allowance and has decreased as the Company's charge-off history has improved. The following table provides a five-year trend of net charge-offs as a percentage of average loans.

Years Ended December 31,

$ 919,058

$ 852,911

$ 874,186

$ 819,381

$ 741,369

$ 719,798

$ 671,242

Net charge-offs

to average loans

Deposits increased by 4.8%, or $43.7 million to $950.6 million at March 31, 2016 compared to $906.9 million at December 31, 2015. Between 2012 and 2016, the Company increased transaction deposits, including noninterest bearing deposits, to lower its overall cost of funds. Average transaction deposits increased $11.1 million to $526.5 million during the first quarter of 2016 compared to the fourth quarter of 2015. Transaction deposits have increased from 44.9% of total deposits at December 31, 2011 to 57.1% of total deposits at March 31, 2016. Details of the Company's deposit portfolio at March 31, 2016 and December 31, 2015 are presented below:

Balance

Noninterest-bearing demand

$ 137,312

14.44%

$ 142,771

15.74%

Interest-bearing:

Demand

126,460

13.30%

120,918

13.33%

Money market deposits

232,024

24.41%

219,956

24.25%

Savings

47,304

47,703

Certificates of deposit

407,499

42.87%

375,551

41.41%

Total interest-bearing

813,287

85.56%

764,128

84.26%

Total Deposits

$ 950,599

$ 906,899

Transaction accounts

$ 543,100

57.13%

$ 531,348

58.59%

The Company uses both traditional brokered deposits and reciprocal brokered deposits. Traditional brokered deposits at March 31, 2016 and December 31, 2015 were $94.6 million and $49.1 million, respectively. Reciprocal brokered deposits at March 31, 2016 and December 31, 2015 were $54.6 million and $61.1 million, respectively. The reciprocal brokered deposits have many characteristics of core deposits and are used to maximize FDIC insurance available to our customers.

Long-term debt and short-term borrowings decreased $10.5 million from $91.6 million at December 31, 2015 to $81.1 million at March 31, 2016. The Company uses brokered deposits and other wholesale funding to supplement funding when loan growth exceeds core deposit growth and for asset-liability management purposes.

During the three months ended March 31, 2016, stockholders' equity increased $1.2 million to $100.9 million. The increase in stockholders' equity was due to net income of $1.6 million, net stock related activities related to stock-based compensation of $88,000 and a current year decrease in accumulated other comprehensive loss of $239,000. These increases to capital were partially offset by quarterly common dividends paid of $453,000 and repurchases of common stock of $322,000. Common stockholders' equity of $100.9 million at March 31, 2016 resulted in a book value of $21.70 per common share compared to $21.48 at December 31, 2015. The Company remains well-capitalized at March 31, 2016 with a Tier 1 capital to average assets ratio of 9.77%.

About The Community Financial Corporation

- The Company is the bank holding company for Community Bank of the Chesapeake. Headquartered in Waldorf, Maryland, Community Bank of the Chesapeake is a full-service commercial bank, with assets over $1 billion. Through its 12 banking centers and five commercial lending centers, Community Bank of the Chesapeake offers a broad range of financial products and services to individuals and businesses. The Company's banking centers are located at its main office in Waldorf, Maryland, and 11 branch offices in Waldorf, Bryans Road, Dunkirk, Leonardtown, La Plata, Charlotte Hall, Prince Frederick, Lusby and California, Maryland; and Central Park and downtown Fredericksburg, Virginia.

Forward-looking Statements

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

Data is unaudited as of March 31, 2016. 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, 2015.

THE COMMUNITY FINANCIAL CORPORATION

SELECTED FINANCIAL INFORMATION AND RATIOS (UNAUDITED)

Three Months Ended (Unaudited)

KEY OPERATING RATIOS

Return on average assets

Return on average common equity

Return on average total equity

Average total equity to average total assets

Interest rate spread

Net interest margin

Cost of funds

Cost of deposits

Cost of debt

Efficiency ratio

Non-interest expense to average assets

Avg. int-earning assets to avg. int-bearing liabilities

117.79

118.43

117.91

Net charge-offs to average loans

COMMON SHARE DATA

Basic net income per common share

$ 0.35

$ 0.33

$ 0.38

Diluted net income per common share

Cash dividends paid per common share

Weighted average common shares outstanding:

Basic

4,594,683

4,605,033

4,694,460

Diluted

4,624,603

4,642,081

(dollars in thousands, except per share amounts)

ASSET QUALITY

$ 1,176,913

$ 1,143,332

$ 33,581

Gross loans

26,250

Past due loans (PDLs) (31 to 89 days)

Nonperforming loans (NPLs) (>=90 days)

10,740

(1,037)

10,392

11,433

(1,041)

Accruing troubled debt restructures (TDRs)

Other real estate owned (OREO)

33,757

34,015

ASSET QUALITY RATIOS

Classified assets to total assets

Classified assets to risk-based capital

Allowance for loan losses to total loans

Allowance for loan losses to nonperforming loans

Past due loans (PDLs) to total loans

Nonperforming loans (NPLs) to total loans

Loan delinquency (PDLs + NPLs) to total loans

Non-accrual loans to total loans

Non-accrual loans and TDRs to total loans

Non-accrual loans, OREO and TDRs to total assets

Book value per common share

$ 21.70

$ 21.48

Common shares outstanding at end of period

4,652,292

4,645,429

OTHER DATA

Number of:

Full-time equivalent employees

Branches

Loan Production Offices

REGULATORY CAPITAL RATIOS

Tier 1 common capital to risk-weighted assets

Tier 1 capital to risk-weighted assets

Total risk-based capital to risk-weighted assets

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. Interest and principal are recognized on a cash-basis in accordance with the Bank's policy if the loans are not impaired or there is no impairment.

At March 31, 2016 and December 31, 2015, the Bank had total TDRs of $17.4 million and $18.6 million, respectively, with three TDR relationships totaling $5.1 million and $5.4 million, respectively, in non-accrual status. These loans are classified as non-accrual loans for the calculation of financial ratios.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(dollars in thousands, except per share amounts )

Interest and Dividend Income

Loans, including fees

$ 10,545

$ 10,500

Taxable interest and dividends on investment securities

Interest on deposits with banks

Total Interest and Dividend Income

11,312

11,208

Interest Expense

Deposits

Short-term borrowings

Long-term debt

Total Interest Expense

Net Interest Income

Provision for loan losses

Net Interest Income After Provision For Loan Losses

Noninterest Income

Loan appraisal, credit, and miscellaneous charges

Net gains on sale of OREO

Net gains on sale of investment securities

Income from bank owned life insurance

Service charges

Total Noninterest Income

Salary and employee benefits

Occupancy expense

Advertising

Data processing expense

Professional fees

Depreciation of furniture, fixtures, and equipment

Telephone communications

Office supplies

FDIC Insurance

OREO valuation allowance and expenses

Other

Income before income taxes

Income tax expense

Net Income Available to Common Stockholders

$ 1,608

$ 1,528

Earnings Per Common Share

Basic

$ 0.35

$ 0.33

Diluted

Cash dividends paid per common share

$ 0.10

The following table presents information on the average balances of the Company's interest-earning assets and interest-bearing liabilities and interest earned or paid thereon for the three months ended March 31, 2016 and December 31, 2015, respectively. There are no tax equivalency adjustments.

For the Three Months Ended

Yield/

Interest-earning assets:

Loan portfolio (1)

$ 919,058

$ 10,545

$ 888,799

$ 10,500

Investment securities, federal funds

sold and interest-bearing deposits

154,781

148,181

Total Interest-Earning Assets

1,073,839

1,036,980

Cash and cash equivalents

12,466

Other assets

71,331

67,990

Total Assets

$ 1,154,482

$ 1,117,436

Liabilities and Stockholders' Equity

Interest-bearing liabilities:

$ 46,596

$ 12

$ 46,829

$ 12

Interest-bearing demand and money

market accounts

346,838

337,753

396,502

375,271

Long-term debt

51,926

61,980

Short-term debt

34,790

18,797

Subordinated Notes

Guaranteed preferred beneficial interest

in junior subordinated debentures

Total Interest-Bearing Liabilities

911,652

875,630

Noninterest-bearing demand deposits

133,021

130,811

Other liabilities

10,211

Stockholders' equity

100,944

100,784

Total Liabilities and Stockholders' Equity

$ 9,393

$ 9,348

Net yield on interest-earning assets

Ratio of average interest-earning

assets to average interest bearing

liabilities

117.79%

118.43%

(1) Average balance includes non-accrual loans

The table below sets forth certain information regarding changes in interest income and interest expense of the Company for the periods indicated. For each category of interest earning asset and interest bearing liability, information is provided on changes attributable to (1) changes in volume (changes in volume multiplied by old rate); and (2) changes in rate (changes in rate multiplied by old volume). Changes in rate volume (changes in rate multiplied by the change in volume) have been allocated to changes due to volume.

compared to Three Months Ended

Volume

Interest income:

$ 347

$ (302)

$ 45

sold and interest bearing deposits

Total interest-earning assets

$ 380

$ (276)

$ 104

Subordinated notes

Total interest-bearing liabilities

$ 58

$ 59

Net change in net interest income

$ 379

$ (334)

$ 10,545

$ 10,177

10,728

Gain on sale of asset

Net losses on sale of investment securities

Gain on sale of loans held for sale

$ 1,608

$ 1,821

Preferred stock dividends

$ 1,798

$ 0.35

$ 0.38

$ 0.10

The following table presents information on the average balances of the Company's interest-earning assets and interest-bearing liabilities and interest earned or paid thereon for the three months ended March 31, 2016 and 2015, respectively. There are no tax equivalency adjustments.

For the Three Months Ended March 31,

$ 852,911

$ 10,177

133,588

986,499

12,163

66,377

$ 1,065,039

$ 42,372

$ 10

304,290

379,382

72,530

12,307

13,800

836,681

112,036

107,651

$ 9,063

117.91%

For the Three Months Ended March 31, 2016

compared to the Three Months Ended

$ 759

$ (391)

$ 368

Total interest-earning assets

$ 864

$ (280)

$ 584

$ 100

$ 154

$ 254

$ 764

$ (434)

$ 330

CONSOLIDATED BALANCE SHEETS

Cash and due from banks

$ 9,501

$ 9,059

Federal funds sold

Interest-bearing deposits with banks

Securities available for sale (AFS), at fair value

36,636

35,116

Securities held to maturity (HTM), at amortized cost

114,455

109,420

Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) stock - at cost

Loans receivable - net of allowance for loan losses of $8,591 and $8,540

Premises and equipment, net

22,450

20,156

Premises and equipment held for sale

Other real estate owned (OREO)

Accrued interest receivable

Investment in bank owned life insurance

28,032

27,836

Other assets

$ 1,176,913

$ 1,143,332

Non-interest-bearing deposits

$ 137,312

Total deposits

30,500

36,000

50,602

55,617

Guaranteed preferred beneficial interest in

junior subordinated debentures (TRUPs)

Accrued expenses and other liabilities

10,033

1,075,971

1,043,549

Common stock - par value $.01; authorized - 15,000,000 shares;

issued 4,652,292 and 4,645,429 shares, respectively

Additional paid in capital

46,907

46,809

Retained earnings

54,316

53,495

Accumulated other comprehensive loss

Unearned ESOP shares

Total Stockholders' Equity

100,942

99,783

CONTACT: William J. Pasenelli, Chief Executive Officer, 888.745.2265

The above information was disclosed in a filing to the SEC. To see the filing, click here.

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