News Column

The Community Financial Corporation Announces Results Of Operations For Fourth Quarter And Year

February 14, 2014

By a News Reporter-Staff News Editor at Economics Week -- The Community Financial Corporation (NASDAQ: TCFC) (formerly Tri-County Financial Corporation ) (the "Company"), the holding company for Community Bank of the Chesapeake (formerly Community Bank of Tri-County ) (the "Bank"), reported consolidated net income available to common shareholders for the three months ended December 31, 2013 increased 12.2% or $173,000 to $1.6 million or $0.35 per common share (diluted) compared to $1.4 million or $0.47 per common share (diluted) for the three months ended December 31, 2012 . The increase was attributable to increased net interest income and a decreased provision for loan losses partially offset by decreased noninterest income and increased noninterest expense and income tax expense. Consolidated net income available to common shareholders for the year ended December 31, 2013 increased $1.7 million , or 34.7%, to $6.5 million , or $1.88 per common share (diluted), compared to $4.8 million , or $1.57 per common share (diluted), for the year ended December 31, 2012 . The increase was attributable to increased net interest income and decreased provision for loan losses partially offset by decreased noninterest income and increased noninterest expense and income tax expense. In October 2013 , the Company issued 1,591,300 shares of common stock at a price of $18.75 per share resulting in net proceeds of $27.4 million after commissions and related offering expenses. The additional shares outstanding impacted year to year comparability of per share earnings beginning with fourth quarter results. "We are focused on leveraging the $27.4 million in additional capital from the Company's October 2013 capital raise, to increase interest-earning assets and enhance shareholder value," stated Michael L. Middleton , Chairman and Chief Executive Officer. "During the fourth quarter of 2013, the Bank successfully grew its loan portfolio $39.3 million from $768.9 million at September 30, 2013 to $808.2 million at December 31, 2013 . Investments have been made in top quality people and technology that should continue to strengthen our franchise." "The Bank opened a commercial loan production office ("LPO") in Fredericksburg, Virginia during August 2013 . We continued to make progress increasing our commercial loan portfolio in our established Southern Maryland footprint during the second half of 2013 and the opening of the Fredericksburg LPO during the late third quarter of this year has exceeded our expectations," stated Gregory Cockerham , Chief Lending Officer of Community Bank of the Chesapeake . "We see tremendous opportunity in the Fredericksburg Virginia area for our Bank; the market is comparable in size to our legacy Southern Maryland footprint." Operations - Year Ended December 31, 2013 compared to Year Ended December 31, 2012 The increase in net income available to common shareholders of $1.7 million to $6.5 million for the year ended December 31, 2013 compared to the year ended December 31, 2012 was attributable to increased net interest income of $2.3 million and a provision for loan losses that was $1.6 million lower. These increases were partially offset by decreased noninterest income of $236,000 , increased noninterest expense of $1.0 million and income tax expense of $995,000 . "Earnings of $6.5 million for the year ended December 31, 2013 are up 34.7% over the prior year," stated William J. Pasenelli , President and Chief Financial Officer. "Net interest income of $32.0 million is up $2.3 million or 7.9% from a year ago, due primarily to reduced funding costs and our ability to maintain asset yields. During the fourth quarter it was a combination of a continued reduction in our cost of funds and increased loan volume that positively increased interest rate spread and net interest margin." Net interest income increased to $32.0 million for the year ended December 31, 2013 compared to $29.7 million for the year ended December 31, 2012 . The net interest margin was 3.56% for the year ended December 31, 2013 , a 25 basis point increase from 3.31% for the year ended December 31, 2012 (see the rate/volume analysis in the exhibits that follow this narrative). The increase was largely the result of a rapid decrease in the Company's cost of funds that began during 2012 as certificates of deposit re-priced and rates declined on money market accounts. The average cost of total interest-bearing liabilities decreased 35 basis points from 1.32% for 2012 to 0.97% for 2013. Interest and dividend income decreased by $615,000 to $39.7 million for the year ended December 31, 2013 compared to $40.3 million for the year ended December 31, 2012 . Decreases in yields on loans and investments were partially offset by the growth in the average balance of loans. A reduction in average yields on interest-earning assets resulted in a decrease in interest income of $1.4 million as rates decreased from 4.50% for the year ended December 31, 2012 to 4.42% for the year ended December 31, 2013 . The Company has been successful over the last several years in mitigating the effect of the lower interest rate environment on loan rates through pricing and interest rate floors. Interest and dividend income was further reduced $301,000 as average interest-earning investment balances decreased $19.1 million from $176.3 million for the year ended December 31, 2012 to $157.2 million for the year ended December 31, 2013 . These reductions were partially offset by an increase in interest income of $1.1 million due to growth of $21.6 million in the average balance of loans from $719.8 million to $741.4 million . Loan growth picked up momentum during the last six months of 2013 as lending increased in both the Bank's Southern Maryland legacy market and the new Fredericksburg, Virginia market. Interest expense decreased $3.0 million to $7.6 million for the year ended December 31, 2013 compared to $10.6 million for the year ended December 31, 2012 due primarily to a reduction in the average cost of funds on interest-bearing liabilities; interest expense decreased $2.7 million due to a decrease in rates. This was principally achieved by a decrease in the average rates paid on certificates of deposits and money market accounts, which declined from 1.60% and 0.56%, respectively, for the year ended December 31, 2012 to 1.19% and 0.33%, respectively, for the year ended December 31, 2013 . The Company has been successful in increasing its core deposits and reducing its cost of funds in the low interest rate environment over the last several years. Additionally, the increase of average noninterest bearing demand deposits of $13.4 million contributed to the decline in funding costs with average balances increasing from $74.2 million for the year ended December 31, 2012 to $87.6 million for the year ended December 31, 2013 . The average rate paid on long-term debt decreased from 3.02% to 2.53% for the comparable period. Interest expense also decreased $446,000 due to a decline in average interest-bearing deposit balances of $28.4 million from $727.4 million for the year ended December 31, 2012 to $699.0 million for the year ended December 31, 2013 . These reductions in interest expense were partially offset by a $224,000 increase in interest expense due to a $9.4 million increase in average debt balances. The provision for loan losses decreased $1.6 million from the comparable period in 2012 to $940,000 for the year ended December 31, 2013 and reflected a decrease in the allowance for specific nonperforming loans and a decrease in net-charge-offs. The specific allowance is based on management's estimate of realizable value for particular loans. Net charge-offs decreased $888,000 from $1.9 million for the year ended December 31, 2012 to $1.0 million for the year ended December 31, 2013 . Noninterest income totaled $4.2 million for the year ended December 31, 2013 compared to $4.4 million for the year ended December 31, 2012 . The decrease of $236,000 was principally due to a reduction in other fees and miscellaneous charges. These decreases were partially offset by increased service charge income and gains on the sale of other real estate owned (OREO). Noninterest income for the year ended December 31, 2012 included net gains on the sale of OREO of $88,000 compared to $179,000 of net gains on the sale of OREO for the comparable period in 2013. Gains on loans originated for sale in the secondary market were $627,000 for the year ended December 31, 2013 compared to $630,000 for the year ended December 31, 2012 . Secondary market sales were concentrated during the first six months of 2013, as residential mortgage refinancing slowed during the third quarter of 2013 due to rising market interest rates. The Bank made a limited investment in personnel and other support for secondary market loan sales. Most personnel previously supporting secondary market sales have been redeployed to focus on other noninterest income growth opportunities. Keywords for this news article include: Economics, Banking and Finance, Finance and Investment, Investment and Finance, The Community Financial Corporation . 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Source: Economics Week


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