The Community Financial Corporation (NASDAQ: TCFC) (the “Company”), the holding company for Community Bank of the Chesapeake (the “Bank”), today reported net income for the three months ended March 31, 2022 of $6.3 million, or $1.10 per diluted common share. This compares to net income of $6.8 million, or $1.18 per diluted common share for the fourth quarter of 2021, and net income of $6.3 million or $1.07 per diluted common share for the quarter ended March 31, 2021.

Management Commentary

"Our work over the past few years to reposition the Bank continues to deliver on our commitments to our communities, our customers, and our shareholders,” stated William J. Pasenelli, Chief Executive Officer. “We believe we are well-positioned for rising rates. We have considerable asset sensitivity with a large percentage of loans scheduled to reprice in the coming quarters. And our low-cost deposit franchise continues to improve with significant growth in non-interest bearing deposits. Continued cost discipline combined with a successful expansion strategy should deliver significant operating leverage for the remainder of the year.”

“Our successful expansion into Virginia continues with plans to open a new branch in Fredericksburg and a new loan production office in Charlottesville in the second quarter,” stated James M. Burke, President. “Loans in Virginia now account for almost 50% of our loan portfolio and have significantly contributed to our growth and profitability over the last several years. Our team in Virginia continues to drive the expansion forward by finding new ways to serve the financial needs of their communities.”

Results of Operations

    (UNAUDITED)        
    Three Months Ended March 31,        
(dollars in thousands)   2022   2021   $ Change   % Change
Interest and dividend income   $ 17,336     $ 17,678   $ (342 )   (1.9 )%
Interest expense     867       1,169     (302 )   (25.8 )%
Net interest income     16,469       16,509     (40 )   (0.2 )%
Provision for credit losses     450       295     155     52.5 %
Provision (recovery) for unfunded commitments     (31 )         (31 )   0.0 %
Noninterest income     1,451       2,360     (909 )   (38.5 )%
Noninterest expense     9,080       10,148     (1,068 )   (10.5 )%
Income before income taxes     8,421       8,426     (36 )   (0.4 )%
Income tax expense     2,133       2,127     6     0.3 %
Net income   $ 6,288     $ 6,299   $ (42 )   (0.7 )%

Net Interest Income

The stability in net interest income resulted primarily from decreases in interest expense from lower funding costs partially offsetting lower interest income. Interest income decreased due to lower asset yields and lower U.S. SBA PPP income due to loan payoffs partially offset by increased interest income from larger average commercial real estate and residential rental loan portfolios and investment securities balance.

Net interest margin of 3.12% for the three months ended March 31, 2022 decreased 38 basis points from 3.50% for the three months ended March 31, 2021 and decreased 10 basis points from 3.22% for the three months ended December 31, 2021. Interest income from the Company's participation in the U.S. SBA PPP program was $0.5 million and $1.8 million for the three months ended March 31, 2022 and March 31, 2021, respectively and $0.8 million for the three months ended December 31, 2021. For the three months ended March 31, 2022, net interest margin increased six basis points as a result of U.S. SBA PPP loan interest income compared to increasing 18 basis points and 10 basis points for the three months ended March 31, 2021 and December 31, 2021.

The Company’s cost of funds was flat at 0.17% during the first quarter of 2022 compared to the prior quarter and decreased from 0.25% for the three months ended March 31, 2021. The Bank's interest rate asset sensitivity improved as average non-interest bearing deposit accounts increased to 29.6% of total average deposits for the first quarter of 2022 compared to 21.3% for the comparable period in 2021 and 22.2% for the previous quarter. Management is optimistic that improvements in the Bank's funding composition should benefit margins and profitability in an increasing interest-rate environment.

We expect U.S. SBA PPP loan forgiveness to modestly contribute to margins and net interest income in the second and third quarters of 2022 with the recognition of remaining net deferred fees. Excluding the acceleration of interest income with U.S. SBA PPP loan forgiveness, a stable to increasing net interest margin is possible during the balance of 2022 assuming interest-earning assets reprice faster than interest-bearing liabilities and the Bank maintains its current favorable funding mix.

Noninterest Income

The decrease in noninterest income in the current quarter was primarily due to gains on the sale of investment securities in the first quarter of 2021 and unrealized losses on securities invested in a Community Reinvestment Act mutual fund in the first quarter of 2022 due to changes in interest rates. In addition, there were small decreases in service charges and referral fee income. Also in the first quarter of 2021, the Bank sold non-accrual and classified commercial real estate and residential mortgage loans and recognized a loss on the sale of $191,000.

Noninterest income as a percentage of average assets was 0.25% and 0.46%, respectively, for the three months ended March 31, 2022 and 2021.

Noninterest Expense

Noninterest expense of $9.1 million for the three months ended March 31, 2022, decreased $1.1 million or 10.5%, compared to $10.1 million for the three months ended March 31, 2021. The decrease in noninterest expense for the comparable periods was primarily due to a fraud loss of $1.3 million in the first quarter of 2021. OREO expenses have moderated as the Bank has been successful at disposing foreclosed assets over the last two years, which have been reduced from $2.3 million at March 31, 2021 to $0.0 million OREO assets at March 31, 2022.

Noninterest expense in the first quarter of 2021 included a non-recurring expense and expenses associated with the origination phase of the SBA PPP program. First, during the first quarter of 2021, the Company incurred an expense of $1.3 million related to an isolated wire transfer fraud incident. Our investigation determined that no information systems of the Bank were compromised, and no employee fraud was involved. Any recovery of insurance proceeds would be recognized in the quarter received. Second, compensation and benefits decreased $250,000 as the Company recorded the deferred costs to underwrite U.S. SBA PPP loans. Deferred costs are being amortized as a component of interest income through the contractual maturity date of each individual U.S. SBA PPP loan. Excluding the impact of these two expenses, the Company's first quarter 2021 noninterest expense was $9.1 million.

Noninterest expense in the first quarter of 2022 at $9.1 million, was lower than anticipated due primarily to lower compensation and benefits and no credit-related costs for OREO. Lower than anticipated health care costs, a lower average full-time equivalent headcount and lower benefit and incentive accruals all contributed to a lower expense run rate. Management's projected quarterly expense run rate for the second quarter of 2022 is estimated between $9.4 million and $9.6 million and includes the base compensation increases given to select employee groups in January 2022 to address local wage competitive pressures.

The Company’s efficiency ratio was 50.67% for the three months ended March 31, 2022 compared to 53.78% for the three months ended March 31, 2021. The Company’s net operating expense ratio was 1.31% for the three months ended March 31, 2022 compared to 1.50% for the three months ended March 31, 2021. The efficiency and net operating expense ratios have improved (decreased) as the Company has been able to improve asset quality and generate more operating revenues while controlling expense growth.

Income Tax Expense

The effective tax rate for the three months ended March 31, 2022 was 25.33% compared to an effective tax rate of 25.24% for the three months ended March 31, 2021.

Balance Sheet

Assets

Total assets increased $24.6 million, or 1.1%, to $2.35 billion at March 31, 2022 compared to total assets of $2.33 billion at December 31, 2021. Cash decreased a net of $26.5 million and was used to fund net loan and investment growth of $36.6 million and $9.7 million, respectively. In addition, deferred tax assets increased $6.5 million to $15.5 million primarily due to the day one CECL adjustment and increases in unrealized losses of the Bank's AFS investment portfolio related to changes in interest rates. Other assets decreased $1.8 million due to a decrease in income tax receivables.

During the first quarter of 2022, total net loans, which include portfolio loans and U.S. SBA PPP loans, increased 9.2% annualized or $36.6 million from $1,586.8 million at December 31, 2021 to $1,623.4 million at March 31, 2022. Net portfolio loans increased 12.2% annualized or $47.8 million from $1,560.4 million at December 31, 2021 to $1,608.2 million at March 31, 2022. Portfolio loans include all loan portfolios except the U.S. SBA PPP loan portfolio. The Company’s loan pipeline was $193.0 million at March 31, 2022.

Non-owner occupied commercial real estate as a percentage of risk-based capital at March 31, 2022 and December 31, 2021 were $872.3 million or 347% and $813.0 million or 331%, respectively. Construction loans as a percentage of risk-based capital at March 31, 2022 and December 31, 2021 were $138.0 million or 55% and $140.4 million or 57%, respectively.

Funding

Total deposits increased $38.9 million or 1.9% (7.6% annualized) at March 31, 2022 compared to December 31, 2021. The increase included a $46.2 million increase to transaction deposits offset by a $7.3 million decrease to time deposits. During the first quarter of 2022, non-interest-bearing demand deposits increased $198.6 million to $644.4 million at March 31, 2022, representing 30.8% of deposits, compared to 21.7% of deposits at December 31, 2021 as management efforts to optimize the deposit franchise achieved results.

Stockholders' Equity and Regulatory Capital

During the three months ended March 31, 2022, total stockholders’ equity decreased $15.0 million. Equity increased due to net income of $6.3 million and net stock related activities in connection with stock-based compensation and ESOP activity of $0.2 million. The decrease in equity was primarily due to an increase of $17.0 million in AOCL in the Bank's AFS securities portfolio due to changes in market interest rates. In addition, equity decreased for common dividends paid of $0.9 million, stock repurchases of $1.6 million and $2.0 million for the adoption of the current expected credit loss ("CECL") accounting standard on January 1, 2022.

The Company's common equity to assets ratio decreased to 8.21% at March 31, 2022 from 8.94% at December 31, 2021. The Company’s ratio of tangible common equity ("TCE") to tangible assets decreased to 7.75% at March 31, 2022 from 8.48% at December 31, 2021 (see Non-GAAP reconciliation schedules) due primarily to increases in AOCL. Regulatory capital was not impacted by the increase in AOCL and Tier 1 capital to average asset ratios at the Bank and the Company remained strong at 9.93% and 9.17% at March 31, 2022 compared to 9.95% and 9.23% at December 31, 2021.

On December 9, 2021, the Company announced its Board of Directors approved the resumption of repurchases allowed under the stock repurchase plan originally adopted in October 2020 (the "2020 Repurchase Plan"). The Company may repurchase the 99,450 shares remaining under the 2020 Repurchase Plan using up to $4.0 million in the aggregate and up to $1.5 million in the aggregate on a quarterly basis. During the first quarter of 2022, the Company repurchased 39,049 shares at an average price of $39.70 per share. At March 31, 2022 the Company had 51,664 shares available to be repurchased under the 2020 Repurchase Plan.

Asset Quality

Allowance for credit losses ("ACL") and provision for credit losses ("PCL"); Allowance for Loan Losses ("ALLL") and provision for loan losses ("PLL")2

On January 1, 2022, the Company adopted ASU 2016-13 "Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments, which replaced the incurred loss methodology for determining our provision for credit losses and ACL with an expected loss methodology that is referred to as the current expected credit loss model ("CECL"). The measurement of expected credit losses under the CECL methodology applies to financial assets subject to credit losses and measured at amortized cost, and certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments, and financial guarantees. In addition, ASU 2016-13 made changes to the accounting for available-for-sale ("AFS") debt securities. Credit- related impairments on AFS debt securities are now recognized as an allowance for credit loss rather than a write-down of the securities amortized cost basis when management does not intend to sell or believes that it is not likely that they will be required to sell the securities prior to recovery of the securities amortized cost basis.

We adopted ASU 2016-13 using the modified retrospective method. Results for reporting periods beginning after January 1, 2022 are presented under ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable GAAP. At adoption, the Company did not hold Held to Maturity ("HTM") investment debt securities.

The following table shows the impact of the Company's adoption of ASC 326:

    January 1, 2022
(dollars in thousands)   As Reported Under ASC 326   Pre-ASC 326 Adoption   Impact of ASC 326 Adoption
Portfolio Loans:            
Commercial real estate   $ 1,113,793     $ 1,115,485       (1,692 )
Residential first mortgages     92,710       91,120       1,590  
Residential rentals     194,911       195,035       (124 )
Construction and land development     35,502       35,590       (88 )
Home equity and second mortgages     25,661       25,638       23  
Commercial loans     50,512       50,574       (62 )
Consumer loans     3,015       3,002       13  
Commercial equipment     62,706       62,499       207  
Total Portfolio Loans     1,578,810       1,578,943       (133 )
Adjustments:            
Net deferred costs           (133 )     133  
Allowance for credit losses     (20,913 )     (18,417 )     (2,496 )
Net Portfolio Loans     1,557,897       1,560,393       (2,496 )
             
U.S. Small Business Administration ("SBA") Paycheck Protection Program ("PPP") loans     26,398       27,276       (878 )
Net deferred fees           (878 )     878  
Net U.S. SBA PPP Loans     26,398       26,398        
Total Net Loans   $ 1,584,295     $ 1,586,791     $ (2,496 )
             
Liabilities: Reserve for Unfunded Commitments   $ 268     $ 51     $ 217  

ACL balances increased to 1.31% of portfolio loans at March 31, 2022 compared to ALLL of 1.17% of portfolio loans at December 31, 2021. At and for the three months ended March 31, 2022, the Company's allowance increased $3.0 million or 16.1% to $21.4 million at March 31, 2022 from $18.4 million at December 31, 2021.

The Company recorded a $0.5 million PCL for the three months ended March 31, 2022 compared to $0.3 million PLL for the three months ended March 31, 2021. There were no net charge-offs during the first quarter of 2022 compared to $1.5 million in net charge-offs for the three months ended March 31, 2021.

Management closely monitors previously COVID-19 deferred loans in reviews of credit quality indicators as part of individual loan and relationship reviews and changes classification ratings as needed. We believe these loans are more likely to default in the future and that the identification and resolution of problem credits could be delayed.

Management believes that the allowance is adequate at March 31, 2022.

_______________________2  The Company implemented the CECL accounting standard effective January 1, 2022. The Company used an incurred loss methodology for all periods compared before March 31, 2022.

Classified and Non-Performing Assets

Classified assets decreased $0.5 million from $5.2 million at December 31, 2021 to $4.7 million at March 31, 2022. Management considers classified assets to be an important measure of asset quality. The Company's risk rating process for classified loans is an important factor in the Company's ACL qualitative framework. In addition, risk ratings are expected to be an important indicator in assessing ongoing credit risks of previously deferred COVID-19 deferred loans. Management remains committed to expeditiously resolving non-performing or substandard credits that are not likely to become performing or passing credits in a reasonable timeframe.

During 2021, classified assets decreased $17.1 million. Asset quality improved with the resolution of $16.9 million in non-accrual and impaired loans through loan sales and negotiated payoffs as well as the resolution of $3.1 million in OREO. The Company's sale of impaired loans decreased the specific reserve, improved asset quality, and improved several ALLL qualitative factors.

Non-accrual loans and OREO to total portfolio loans and OREO decreased two basis points from 0.48% at December 31, 2021 to 0.46% at March 31, 2022. Non-accrual loans, OREO and TDRs to total assets decreased one basis points from 0.35% at December 31, 2021 to 0.34% at March 31, 2022. 

Non-accrual loans decreased $0.2 million from $7.6 million at December 31, 2021 to $7.5 million at March 31, 2022. There were no OREO balances at March 31, 2022 and December 31, 2021.

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 $2.4 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 branches are located at its main office in Waldorf, Maryland, and branch offices in 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”, “assume” 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: (i) those relating to the Company’s and the Bank’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; (ii) 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 undertaken or that we undertake in the future; (iii) plans and cost savings regarding branch closings or consolidation; (iv) projections related to certain financial metrics; (v) expected benefits of programs we introduce, including residential mortgage programs and retail and commercial credit card programs; and (vi) any statement of expectation or belief, and any 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: (i) 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; (ii) 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); (iii) the impacts related to or resulting from Russia’s military action in Ukraine, including the broader impacts to financial markets and the global macroeconomic and geopolitical environments; (iv) assumptions that interest-earning assets will reprice faster than interest-bearing liabilities and the Bank’s ability to maintain its current favorable funding mix; (v) the synergies and other expected financial benefits from any acquisition that we have undertaken or may undertake in the future may or may not be realized within the expected time frames; (vi) changes in the Company's or the Bank's strategy, costs or difficulties related to integration matters might be greater than expected; (vii) availability of and costs associated with obtaining adequate and timely sources of liquidity; (viii) the ability to maintain credit quality; (ix) general economic trends and conditions, including inflation and its impacts; (x) changes in interest rates; (xi) loss of deposits and loan demand to other financial institutions; (xii) substantial changes in financial markets; (xiii) changes in real estate value and the real estate market; (xiv) regulatory changes; (xv) the impact of government shutdowns or sequestration; (xvi) the possibility of unforeseen events affecting the industry generally; (xvii) the uncertainties associated with newly developed or acquired operations; (xviii) the outcome of pending or threatened litigation, or of matters before regulatory agencies, whether currently existing or commencing in the future; (xix) market disruptions and other effects of terrorist activities; and (xx) the matters described in “Item 1A Risk Factors” in the Company’s Annual Report on Form 10-K for the Year Ended December 31, 2021, 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 March 31, 2022. 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, 2021.

CONTACTS:William J. Pasenelli, Chief Executive OfficerTodd L. Capitani, Chief Financial Officer888.745.2265

SUPPLEMENTAL QUARTERLY FINANCIAL DATA CONSOLIDATED INCOME STATEMENT (UNAUDITED)

    Three Months Ended
(dollars in thousands)   March 31, 2022   December 31, 2021   September 30, 2021   June 30, 2021   March 31, 2021
Interest and Dividend Income                    
Loans, including fees   $ 15,610     $ 16,222     $ 16,342     $ 16,320     $ 16,592  
Interest and dividends on securities     1,666       1,531       1,296       1,101       1,064  
Interest on deposits with banks     60       25       21       23       22  
Total Interest and Dividend Income     17,336       17,778       17,659       17,444       17,678  
Interest Expense                    
Deposits     513       565       594       640       802  
Long-term debt     354       332       456       369       367  
Total Interest Expense     867       897       1,050       1,009       1,169  
Net Interest Income ("NII")     16,469       16,881       16,609       16,435       16,509  
Provision for credit losses     450                   291       295  
Provision (recovery) for unfunded commitments     (31 )                        
NII After Provision For Credit Losses     16,050       16,881       16,609       16,144       16,214  
Noninterest Income                    
Loan appraisal, credit, and misc. charges     176       257       29       44       198  
Gain on sale of assets                       68        
Net gains on sale of investment securities                             586  
Unrealized (losses) gain on equity securities     (222 )     (45 )     (22 )     13       (85 )
Loss on premises and equipment held for sale           (5 )     (20 )            
Income from bank owned life insurance     214       219       220       218       214  
Service charges     926       1,235       987       892       1,187  
Referral fee income     361       574       176       621       451  
Net (losses) gain on sale of loans originated for sale     (4 )     55       30              
Loss on sale of loans                             (191 )
Total Noninterest Income     1,451       2,290       1,400       1,856       2,360  
Noninterest Expense                    
Compensation and benefits     5,055       5,265       5,650       5,332       4,788  
OREO valuation allowance and expenses     6       767       20       488       181  
Sub Total     5,061       6,032       5,670       5,820       4,969  
Operating Expenses                    
Occupancy expense     732       656       731       688       761  
Advertising     64       128       145       148       79  
Data processing expense     1,007       1,006       840       990       936  
Professional fees     731       937       676       604       640  
Depreciation of premises and equipment     149       139       137       135       147  
FDIC Insurance     179       90       120       140       252  
Core deposit intangible amortization     109       115       121       126       133  
Fraud losses (recovery)     40       16       133       (218 )     1,329  
Other expenses     1,008       1,060       874       945       902  
Total Operating Expenses     4,019       4,147       3,777       3,558       5,179  
Total Noninterest Expense     9,080       10,179       9,447       9,378       10,148  
Income before income taxes     8,421       8,992       8,562       8,622       8,426  
Income tax expense     2,133       2,241       2,158       2,190       2,127  
Net Income   $ 6,288     $ 6,751     $ 6,404     $ 6,432     $ 6,299  

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

(dollars in thousands, except per share amounts)   March 31, 2022   December 31, 2021   September 30, 2021   June 30, 2021   March 31, 2021
Assets                    
Cash and due from banks   $ 80,702     $ 108,990     $ 112,314     $ 40,881     $ 126,834  
Federal funds sold                       79,404       43,614  
Interest-bearing deposits with banks     32,460       30,664       34,929       18,626       17,390  
Securities available for sale ("AFS"), at fair value     507,527       497,839       456,664       347,678       253,348  
Equity securities carried at fair value through income     4,562       4,772       4,805       4,814       4,787  
Non-marketable equity securities held in other financial institutions     207       207       207       207       207  
Federal Home Loan Bank ("FHLB") stock - at cost     1,685       1,472       1,472       2,036       2,036  
Loans held for sale     373                          
Net U.S. Small Business Administration ("SBA") Paycheck Protection ("PPP") Loans     15,279       26,398       54,807       86,482       112,485  
Portfolio Loans Receivable net of allowance for credit losses of $21,382, $18,417, $18,579, $18,516, and $18,256     1,608,156       1,560,393       1,514,837       1,515,893       1,489,806  
Net Loans     1,623,435       1,586,791       1,569,644       1,602,375       1,602,291  
Goodwill     10,835       10,835       10,835       10,835       10,835  
Premises and equipment, net     21,304       21,427       21,795       21,630       20,540  
Other real estate owned ("OREO")                 1,536       1,536       2,329  
Accrued interest receivable     5,389       5,588       6,045       6,590       7,337  
Investment in bank owned life insurance     39,145       38,932       38,713       38,493       38,275  
Core deposit intangible     924       1,032       1,147       1,267       1,394  
Net deferred tax assets     15,523       9,033       8,790       8,139       8,671  
Right of use assets - operating leases     6,033       6,124       6,215       6,305       6,391  
Other assets     1,819       3,600       3,581       4,243       3,252  
Total Assets   $ 2,351,923     $ 2,327,306     $ 2,278,692     $ 2,195,059     $ 2,149,531  
Liabilities and Stockholders' Equity                    
Liabilities                    
Deposits                    
Non-interest-bearing deposits   $ 644,385     $ 445,778     $ 432,606     $ 423,165     $ 406,319  
Interest-bearing deposits     1,450,698       1,610,386       1,572,001       1,484,973       1,461,577  
Total deposits     2,095,083       2,056,164       2,004,607       1,908,138       1,867,896  
Long-term debt     12,213       12,231       12,249       27,267       27,285  
Guaranteed preferred beneficial interest in junior subordinated debentures ("TRUPs")     12,000       12,000       12,000       12,000       12,000  
Subordinated notes - 4.75%     19,524       19,510       19,496       19,482       19,468  
Lease liabilities - operating leases     6,266       6,343       6,418       6,512       6,614  
Accrued expenses and other liabilities     13,697       12,925       19,794       17,698       15,509  
Total Liabilities     2,158,783       2,119,173       2,074,564       1,991,097       1,948,772  
Stockholders' Equity                    
Common stock     57       57       57       58       59  
Additional paid in capital     97,189       96,896       96,649       96,411       96,181  
Retained earnings     115,179       113,448       107,890       104,889       103,294  
Accumulated other comprehensive (loss) income     (18,969 )     (1,952 )     (9 )     3,063       1,684  
Unearned ESOP shares     (316 )     (316 )     (459 )     (459 )     (459 )
Total Stockholders' Equity     193,140       208,133       204,128       203,962       200,759  
Total Liabilities and Stockholders' Equity   $ 2,351,923     $ 2,327,306     $ 2,278,692     $ 2,195,059     $ 2,149,531  
Common shares issued and outstanding     5,686,799       5,718,528       5,724,011       5,786,928       5,897,685  

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

    Three Months Ended
(dollars in thousands, except per share amounts)   March 31, 2022   December 31, 2021   September 30, 2021   June 30, 2021   March 31, 2021
KEY OPERATING RATIOS                    
Return on average assets ("ROAA")     1.08 %     1.18 %     1.17 %     1.22 %     1.22 %
Pre-tax Pre-Provision ROAA**     1.53       1.57       1.57       1.68       1.68  
Return on average common equity ("ROACE")     12.30       13.00       12.45       12.62       12.53  
Pre-tax Pre-Provision ROACE**     17.35       17.31       16.65       17.49       17.34  
Return on Average Tangible Common Equity ("ROATCE")**     13.22       13.97       13.41       13.62       13.56  
Average total equity to average total assets     8.79       9.06       9.40       9.63       9.71  
Interest rate spread     3.05       3.17       3.22       3.30       3.43  
Net interest margin     3.12       3.22       3.28       3.37       3.50  
Cost of funds     0.17       0.17       0.21       0.21       0.25  
Cost of deposits     0.10       0.11       0.12       0.14       0.18  
Cost of debt     3.24       3.04       3.19       2.51       2.50  
Efficiency ratio     50.67       53.10       52.46       51.27       53.78  
Non-interest expense to average assets     1.56       1.78       1.73       1.77       1.96  
Net operating expense to average assets     1.31       1.38       1.47       1.42       1.50  
Average interest-earning assets to average interest-bearing liabilities     141.56       129.68       132.54       131.36       128.84  
Net charge-offs (recoveries) to average portfolio loans     0.00       0.04       (0.02 )     0.01       0.40  
                     
COMMON SHARE DATA                    
Basic net income per common share   $ 1.11     $ 1.18     $ 1.12     $ 1.10     $ 1.07  
Diluted net income per common share     1.10       1.18       1.12       1.10       1.07  
Cash dividends paid per common share     0.175       0.150       0.150       0.15       0.13  
Basic - weighted average common shares outstanding     5,688,221       5,711,746       5,709,814       5,845,009       5,888,250  
Diluted - weighted average common shares outstanding     5,699,038       5,723,011       5,720,001       5,856,954       5,897,698  
                     
ASSET QUALITY                    
Total assets   $ 2,351,923     $ 2,327,306     $ 2,278,692     $ 2,195,059     $ 2,149,531  
Total portfolio loans (1)     1,629,538       1,578,810       1,533,416       1,534,409       1,508,062  
Classified assets     4,745       5,211       6,663       14,918       16,145  
Allowance for credit losses     21,382       18,417       18,579       18,516       18,256  
                     
Past due loans - 31 to 89 days     386       568       189       101       1,373  
Past due loans >=90 days     1,233       961       1,400       5,836       5,453  
Total past due loans (2) (3)     1,619       1,529       1,589       5,937       6,826  
                     
Non-accrual loans (4)     7,465       7,631       5,160       13,802       13,623  
Accruing troubled debt restructures ("TDRs")     442       447       455       503       504  
Other real estate owned ("OREO")                 1,536       1,536       2,329  
Non-accrual loans, OREO and TDRs   $ 7,907     $ 8,078     $ 7,151     $ 15,841     $ 16,456  

** 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. December 31, 2021, September 30, 2021, June 30, 2021 and March 31, 2021 reported balance are shown net of deferred costs and fees to conform with the current period's presentation.

(2)   Delinquency excludes Purchase Credit Impaired ("PCI") loans.

(3)   There were no COVID-19 deferred loans in process as of April 28, 2022 that were reported as delinquent as of March 31, 2022.

(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 March 31, 2022 and December 31, 2021, the Company had current non-accrual loans of $6.0 million and $6.7 million, respectively.

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

    Three Months Ended
(dollars in thousands, except per share amounts)   March 31, 2022   December 31, 2021   September 30, 2021   June 30, 2021   March 31, 2021
ASSET QUALITY RATIOS (1)                    
Classified assets to total assets     0.20 %     0.22 %     0.29 %     0.68 %     0.75 %
Classified assets to risk-based capital     1.87       2.10       2.75       6.24       6.81  
Allowance for credit losses to total portfolio loans     1.31       1.17       1.21       1.21       1.21  
Allowance for credit losses to non-accrual loans     286.43       241.34       360.06       134.15       134.01  
Past due loans - 31 to 89 days to total portfolio loans     0.02       0.04       0.01       0.01       0.09  
Past due loans >=90 days to total portfolio loans     0.08       0.06       0.09       0.38       0.36  
Total past due (delinquency) to total portfolio loans     0.10       0.10       0.10       0.39       0.45  
Non-accrual loans to total portfolio loans     0.46       0.48       0.34       0.90       0.90  
Non-accrual loans and TDRs to total portfolio loans     0.49       0.51       0.37       0.93       0.94  
Non-accrual loans and OREO to total portfolio assets     0.32       0.33       0.29       0.70       0.74  
Non-accrual loans and OREO to total portfolio loans and OREO     0.46       0.48       0.44       1.00       1.06  
Non-accrual loans, OREO and TDRs to total assets     0.34       0.35       0.31       0.72       0.77  
                     
COMMON SHARE DATA                    
Book value per common share   $ 33.96     $ 36.40     $ 35.66     $ 35.25     $ 34.04  
Tangible book value per common share**     31.90       34.32       33.57       33.15       31.97  
Common shares outstanding at end of period     5,686,799       5,718,528       5,724,011       5,786,928       5,897,685  
                     
OTHER DATA                    
Full-time equivalent employees     191       186       196       189       192  
Branches     11       11       11       11       11  
Loan Production Offices     4       4       4       4       4  
                     
CAPITAL RATIOS                    
Tier 1 capital to average assets     9.17 %     9.23 %     9.41 %     9.57 %     9.70 %
Tier 1 common capital to risk-weighted assets     11.58       11.92       11.89       11.56       11.72  
Tier 1 capital to risk-weighted assets     12.28       12.64       12.64       12.30       12.47  
Total risk-based capital to risk-weighted assets     14.65       14.92       14.99       14.62       14.83  
Common equity to assets     8.21       8.94       8.96       9.29       9.34  
Tangible common equity to tangible assets **     7.75       8.48       8.48       8.79       8.82  

** 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)   March 31, 2022   December 31, 2021   September 30, 2021   June 30, 2021   March 31, 2021
Total assets   $ 2,351,923     $ 2,327,306     $ 2,278,692     $ 2,195,059     $ 2,149,531  
Less: intangible assets                    
Goodwill     10,835       10,835       10,835       10,835       10,835  
Core deposit intangible     924       1,032       1,147       1,267       1,394  
Total intangible assets     11,759       11,867       11,982       12,102       12,229  
Tangible assets   $ 2,340,164     $ 2,315,439     $ 2,266,710     $ 2,182,957     $ 2,137,302  
                     
Total common equity   $ 193,140     $ 208,133     $ 204,128     $ 203,962     $ 200,759  
Less: intangible assets     11,759       11,867       11,982       12,102       12,229  
Tangible common equity   $ 181,381     $ 196,266     $ 192,146     $ 191,860     $ 188,530  
                     
Common shares outstanding at end of period     5,686,799       5,718,528       5,724,011       5,786,928       5,897,685  
                     
Common equity to assets     8.21 %     8.94 %     8.96 %     9.29 %     9.34 %
Tangible common equity to tangible assets     7.75 %     8.48 %     8.48 %     8.79 %     8.82 %
                     
Common book value per share   $ 33.96     $ 36.40     $ 35.66     $ 35.25     $ 34.04  
Tangible common book value per share   $ 31.90     $ 34.32     $ 33.57     $ 33.15     $ 31.97  

RECONCILIATION OF NON-GAAP MEASURES (UNAUDITED)

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

Management believes that PTPP income, which reflects the Company's profitability before income taxes and loan loss provisions, allows investors to better assess the Company's operating income and expenses in relation to the Company's core operating revenue by removing the volatility that is associated with credit provisions and different state income tax rates for comparable institutions. ROATCE is computed by dividing net earnings applicable to common shareholders by average tangible common shareholders' equity. Management believes that ROATCE is meaningful because it measures the performance of a business consistently, whether acquired or internally developed. ROATCE is a non-GAAP measure and may not be comparable to similar non-GAAP measures used by other companies. Management also believes 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
(dollars in thousands)   March 31, 2022   December 31, 2021   September 30, 2021   June 30, 2021   March 31, 2021
Net income (as reported)   $ 6,288     $ 6,751     $ 6,404     $ 6,432     $ 6,299  
Provision for credit losses     450                   291       295  
Income tax expenses     2,133       2,241       2,158       2,190       2,127  
Non-GAAP PTPP income   $ 8,871     $ 8,992     $ 8,562     $ 8,913     $ 8,721  
                     
ROAA     1.08 %     1.18 %     1.17 %     1.22 %     1.22 %
Pre-tax Pre-Provision ROAA     1.53 %     1.57 %     1.57 %     1.68 %     1.68 %
                     
ROACE     12.30 %     13.00 %     12.45 %     12.62 %     12.53 %
Pre-tax Pre-Provision ROACE     17.35 %     17.31 %     16.65 %     17.49 %     17.34 %
                     
Average assets   $ 2,325,992     $ 2,293,264     $ 2,187,989     $ 2,116,939     $ 2,070,575  
Average equity   $ 204,554     $ 207,745     $ 205,723     $ 203,893     $ 201,124  
    Three Months Ended
(dollars in thousands)   March 31, 2022   December 31, 2021   September 30, 2021   June 30, 2021   March 31, 2021
Net income (as reported)   $ 6,288     $ 6,751     $ 6,404     $ 6,432     $ 6,299  
Core deposit intangible amortization (net of tax)     81       86       91       94       99  
Net earnings applicable to common shareholders   $ 6,369     $ 6,837     $ 6,495     $ 6,526     $ 6,398  
                     
ROATCE     13.22 %     13.97 %     13.41 %     13.62 %     13.56 %
                     
Average tangible common equity   $ 192,725     $ 195,803     $ 193,662     $ 191,708     $ 188,808  

AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME (UNAUDITED)

    For the Three Months Ended March 31,   For the Three Months Ended
    2022   2021   March 31, 2022   December 31, 2021
(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   $ 1,112,108     $ 10,737   3.86 %   $ 1,059,803     $ 10,696   4.04 %   $ 1,112,108     $ 10,737   3.86 %   $ 1,099,088     $ 10,911   3.97 %
Residential first mortgages     86,805       713   3.29 %     124,984       914   2.93 %     86,805       713   3.29 %     93,997       756   3.22 %
Residential rentals     197,312       1,831   3.71 %     139,220       1,445   4.15 %     197,312       1,831   3.71 %     173,238       1,760   4.06 %
Construction and land development     33,669       407   4.84 %     36,091       402   4.46 %     33,669       407   4.84 %     38,345       431   4.50 %
Home equity and second mortgages     25,946       245   3.78 %     29,272       248   3.39 %     25,946       245   3.78 %     26,160       232   3.55 %
Commercial loans     46,668       550   4.71 %     44,740       551   4.93 %     46,668       550   4.71 %     52,765       626   4.75 %
Commercial equipment loans     61,715       642   4.16 %     60,544       519   3.43 %     61,715       642   4.16 %     61,851       634   4.10 %
U.S. SBA PPP loans     20,444       452   8.84 %     116,003       1,802   6.21 %     20,444       452   8.84 %     40,376       847   8.39 %
Consumer loans     3,213       33   4.11 %     1,320       15   4.55 %     3,213       33   4.11 %     2,629       25   3.80 %
Allowance for credit losses     (21,043 )       0.00 %     (19,614 )       0.00 %     (21,043 )       0.00 %     (18,434 )       0.00 %
Loan portfolio (1)   $ 1,566,837     $ 15,610   3.99 %   $ 1,592,363     $ 16,592   4.17 %   $ 1,566,837     $ 15,610   3.99 %   $ 1,570,015     $ 16,222   4.13 %
Taxable investment securities     484,157       1,572   1.30 %     229,810       951   1.66 %     484,157       1,572   1.30 %     465,771       1,441   1.24 %
Nontaxable investment securities     17,513       94   2.15 %     20,841       114   2.19 %     17,513       94   2.15 %     17,509       90   2.06 %
Interest-bearing deposits in other banks     42,608       60   0.56 %     25,064       14   0.22 %     42,608       60   0.56 %     41,736       25   0.24 %
Federal funds sold             0.00 %     18,721       7   0.15 %             0.00 %             0.00 %
Total Interest-Earning Assets     2,111,115       17,336   3.28 %     1,886,799       17,678   3.75 %     2,111,115       17,336   3.28 %     2,095,031       17,778   3.39 %
Cash and cash equivalents     116,560               82,669               116,560               100,480          
Goodwill     10,835               10,835               10,835               10,835          
Core deposit intangible     994               1,481               994               1,107          
Other assets     86,488               88,791               86,488               85,811          
Total Assets   $ 2,325,992             $ 2,070,575             $ 2,325,992             $ 2,293,264          
                                                 
Liabilities and Stockholders' Equity                                                
Noninterest-bearing demand deposits   $ 609,945     $   0.00 %   $ 381,059     $   0.00 %   $ 609,945     $   0.00 %   $ 449,272     $   0.00 %
Interest-bearing deposits                                                
Savings     121,236       15   0.05 %     101,782       13   0.05 %     121,236       15   0.05 %     114,123       14   0.05 %
Demand deposits     625,241       103   0.07 %     602,836       97   0.06 %     625,241       103   0.07 %     754,656       87   0.05 %
Money market deposits     378,781       100   0.11 %     349,718       98   0.11 %     378,781       100   0.11 %           0.11 %
Certificates of deposit     322,346       295   0.37 %     351,365       594   0.68 %     322,346       295   0.37 %     333,658       364   0.44 %
Total interest-bearing deposits     1,447,604       513   0.14 %     1,405,701       802   0.23 %     1,447,604       513   0.14 %     1,571,851       565   0.14 %
Total Deposits     2,057,549       513   0.10 %     1,786,760       802   0.18 %     2,057,549       513   0.10 %     2,021,123       565   0.11 %
Long-term debt     12,219       25   0.82 %     27,291       41   0.60 %     12,219       25   0.82 %     12,237       6   0.20 %
Subordinated Notes     19,515       251   5.14 %     19,490       251   5.15 %     19,515       251   5.14 %     19,501       252   5.17 %
Guaranteed preferred beneficial interest in junior subordinated debentures     12,000       78   2.60 %     12,000       75   2.50 %     12,000       78   2.60 %     12,000       74   2.47 %
Total Debt     43,734       354   3.24 %     58,781       367   2.50 %     43,734       354   3.24 %     43,738       332   3.04 %
Interest-Bearing Liabilities     1,491,338       867   0.23 %     1,464,482       1,169   0.32 %     1,491,338       867   0.23 %     1,615,589       897   0.22 %
Total Funds     2,101,283       867   0.17 %     1,845,541       1,169   0.25 %     2,101,283       867   0.17 %     2,064,861       897   0.17 %
Other liabilities     20,155               23,910               20,155               20,658          
Stockholders' equity     204,554               201,124               204,554               207,745          
Total Liabilities and Stockholders' Equity   $ 2,325,992             $ 2,070,575             $ 2,325,992             $ 2,293,264          
                                                 
Net interest income       $ 16,469           $ 16,509           $ 16,469           $ 16,881    
                                                 
Interest rate spread           3.05 %           3.43 %           3.05 %           3.17 %
Net yield on interest-earning assets           3.12 %           3.50 %           3.12 %           3.22 %
Average interest-earning assets to average interest-bearing liabilities           141.56 %           128.84 %           141.56 %           129.68 %
Average loans to average deposits           76.15 %           89.12 %           76.15 %           77.68 %
Average transaction deposits to total average deposits **           84.33 %           80.34 %           84.33 %           83.49 %
                                                 
Cost of funds           0.17 %           0.25 %           0.17 %           0.17 %
Cost of deposits           0.10 %           0.18 %           0.10 %           0.11 %
Cost of debt           3.24 %           2.50 %           3.24 %           3.04 %

(1) Loan average balance includes non-accrual loans. There are no tax equivalency adjustments. There was $50,000, $90,000 and $161,000 of accretion interest for the three months ended March 31, 2022 and 2021, and December 31, 2021, respectively.

** Transaction deposits exclude time deposits.

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

Portfolio loans, net of deferred costs and fees, are summarized by type as follows:

BY LOAN TYPE   March 31, 2022   %   December 31, 2021*   %   September 30, 2021*   %   June 30, 2021*   %   March 31, 2021*   %
Portfolio Loans:                                        
Commercial real estate   $ 1,177,761     72.28 %   $ 1,113,793     70.54 %   $ 1,087,102     70.89 %   $ 1,110,011     72.34 %   $ 1,079,561     71.60 %
Residential first mortgages     86,416     5.30       92,710     5.87       98,590     6.43       107,435     7.00       117,977     7.82  
Residential rentals     191,065     11.73       194,911     12.35       172,073     11.22       142,252     9.27       137,573     9.12  
Construction and land development     30,649     1.88       35,502     2.25       37,070     2.42       36,839     2.40       38,377     2.54  
Home equity and second mortgages     26,445     1.62       25,661     1.63       26,542     1.73       28,751     1.87       29,387     1.95  
Commercial loans     48,948     3.00       50,512     3.20       48,287     3.15       47,530     3.10       42,698     2.83  
Consumer loans     3,592     0.22       3,015     0.19       2,183     0.14       1,459     0.10       1,432     0.09  
Commercial equipment     64,662     3.97       62,706     3.97       61,569     4.02       60,132     3.92       61,057     4.05  
Total portfolio loans     1,629,538     100.00 %     1,578,810     100.00 %     1,533,416     100.00 %     1,534,409     100.00 %     1,508,062     100.00 %
Less: Allowance for Credit Losses     (21,382 )   (1.31 )     (18,417 )   (1.17 )     (18,579 )   (1.21 )     (18,516 )   (1.21 )     (18,256 )   (1.21 )
Total net portfolio loans     1,608,156           1,560,393           1,514,837           1,515,893           1,489,806      
U.S. SBA PPP loans     15,279           26,398           54,807           86,482           112,485      
Total net loans   $ 1,623,435         $ 1,586,791         $ 1,569,644         $ 1,602,375         $ 1,602,291      

* December 31, 2021, September 30, 2021, June 30, 2021 and March 31, 2021 reported balance are shown net of deferred costs and fees to conform with the current period's presentation.

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: 

    March 31, 2022   December 31, 2021   September 30, 2021   June 30, 2021   March 31, 2021
(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   3.79 %   3.79 %   3.91 %   3.96 %   4.02 %
Residential first mortgages   3.80 %   3.80 %   3.84 %   3.87 %   3.87 %
Residential rentals   3.78 %   3.81 %   3.97 %   4.11 %   4.20 %
Construction and land development   4.36 %   4.38 %   4.32 %   4.31 %   4.32 %
Home equity and second mortgages   3.50 %   3.51 %   3.51 %   3.50 %   3.52 %
Commercial loans   4.47 %   4.48 %   4.48 %   4.44 %   4.63 %
Consumer loans   4.33 %   4.37 %   5.26 %   5.65 %   5.75 %
Commercial equipment   4.29 %   4.32 %   4.39 %   4.42 %   4.40 %
U.S. SBA PPP loans   1.00 %   1.00 %   1.00 %   1.00 %   1.00 %
Total Loans   3.81 %   3.80 %   3.85 %   3.84 %   3.84 %
                     
Yields without U.S. SBA PPP Loans   3.85 %   3.84 %   3.95 %   4.00 %   4.06 %

ALLOWANCE FOR CREDIT LOSSES AND ALLOWANCE FOR LOAN LOSSES (UNAUDITED)

(dollars in thousands)   For the Three Months Ended**
  March 31, 2022   December 31, 2021   September 30, 2021   June 30, 2021   March 31, 2021
Beginning of period   $ 18,417     $ 18,579     $ 18,516     $ 18,256     $ 19,424  
                     
Impact of ASC 326 Adoption     2,496                          
Charge-offs           (181 )     (491 )     (61 )     (1,485 )
Recoveries     19       19       554       30       22  
Net charge-offs     19       (162 )     63       (31 )     (1,463 )
                     
Provision for credit losses     450                   291       295  
End of period   $ 21,382     $ 18,417     $ 18,579     $ 18,516     $ 18,256  
                     
Net charge-offs to average portfolio loans (annualized)2     %   (0.04 )%     0.02 %   (0.01 )%   (0.40 )%
                     
Breakdown of general and specific allowance as a percentage of total portfolio loans3
General allowance   $ 21,087     $ 18,151     $ 18,204     $ 17,686     $ 17,365  
Specific allowance     295       266       323       778       891  
    $ 21,382     $ 18,417     $ 18,527     $ 18,464     $ 18,256  
                     
General allowance     1.29 %     1.15 %     1.19 %     1.15 %     1.15 %
Specific allowance     0.02 %     0.02 %     0.02 %     0.05 %     0.06 %
Allowance to total portfolio loans     1.31 %     1.17 %     1.21 %     1.20 %     1.21 %
                     
Allowance to non-acquired loans   n/a (1)     1.20 %     1.25 %     1.25 %     1.26 %
                     
Allowance + Non-PCI FV Mark   n/a (1)   $ 18,815     $ 19,070     $ 19,090     $ 18,939  
Allowance + Non-PCI FV Mark to total portfolio loans   n/a (1)     1.19 %     1.24 %     1.24 %     1.26 %

* The Company implemented the CECL accounting standard effective January 1, 2022. The Company used an incurred loss methodology for quarters displayed before March 31, 2022.

(1)   Allowance to non-acquired loans and Non-PCI FV Mark are no longer relevant as all the ACL considers all loan portfolios.

________________3  Portfolio loans include all loan portfolios except the U.S. SBA PPP loan portfolio.

CLASSIFIED AND SPECIAL MENTION ASSETS (UNAUDITED)

The following is a breakdown of the Company’s classified and special mention assets at March 31, 2022 and December 31, 2021, 2020, 2019, and 2018, respectively: 

    As of
(dollars in thousands)   3/31/20224   12/31/2021   12/31/2020   12/31/2019   12/31/2018
Classified loans                    
Substandard   $ 4,745     $ 5,211     $ 19,249     $ 26,863     $ 32,226  
Doubtful                              
Total classified loans     4,745       5,211       19,249       26,863       32,226  
Special mention loans                 7,672              
Total classified and special mention loans   $ 4,745     $ 5,211     $ 26,921     $ 26,863     $ 32,226  
                     
Classified loans   $ 4,745     $ 5,211     $ 19,249     $ 26,863     $ 32,226  
Classified securities                             482  
Other real estate owned                 3,109       7,773       8,111  
Total classified assets   $ 4,745     $ 5,211     $ 22,358     $ 34,636     $ 40,819  
                     
Total classified assets as a percentage of total assets     0.20 %     0.22 %     1.10 %     1.93 %     2.42 %
Total classified assets as a percentage of Risk Based Capital     1.87 %     2.10 %     9.61 %     16.21 %     21.54 %

___________________4  Classified loans are not net of deferred costs and fees before the quarter ended March 31, 2022.

SUMMARY OF DEPOSITS (UNAUDITED)

    March 31, 2022   December 31, 2021   September 30, 2021   June 30, 2021   March 31, 2021
(dollars in thousands)   Balance   %   Balance   %   Balance   %   Balance   %   Balance   %
Noninterest-bearing demand   $ 644,385   30.75 %   $ 445,778   21.68 %   $ 432,606   21.58 %   $ 423,165   22.18 %   $ 406,319   21.75 %
Interest-bearing:                                        
Demand deposits     618,869   29.54 %     790,481   38.45 %     764,482   38.14 %     685,023   35.90 %     651,639   34.89 %
Money market deposits     387,700   18.51 %     372,717   18.13 %     355,582   17.74 %     351,262   18.41 %     355,680   19.04 %
Savings     124,038   5.92 %     119,767   5.82 %     112,282   5.60 %     107,288   5.62 %     105,590   5.65 %
Certificates of deposit     320,091   15.28 %     327,421   15.92 %     339,655   16.94 %     341,400   17.89 %     348,668   18.67 %
Total interest-bearing     1,450,698   69.25 %     1,610,386   78.32 %     1,572,001   78.42 %     1,484,973   77.82 %     1,461,577   78.25 %
Total Deposits   $ 2,095,083   100.00 %   $ 2,056,164   100.00 %   $ 2,004,607   100.00 %   $ 1,908,138   100.00 %   $ 1,867,896   100.00 %
                                         
Transaction accounts   $ 1,774,992   84.72 %   $ 1,728,743   84.08 %   $ 1,664,952   83.06 %   $ 1,566,738   82.11 %   $ 1,519,228   81.33 %
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