The Community Financial Corporation Announces 1.22% Return on Average Assets for Second Quarter Of 2021

Rhea-AI Summary

The Community Financial Corporation (NASDAQ: TCFC) reported strong financial performance for Q2 2021, with net income reaching $6.4 million or $1.10 per diluted share, up from $3.5 million in Q2 2020. For the first half of 2021, net income totaled $12.7 million, a significant increase compared to $6.2 million in the same period last year. The company achieved record returns on average assets (ROAA) and equity (ROACE), at 1.22% and 12.62% respectively. However, net interest margins compressed to 3.37% due to a low-interest-rate environment. The company also repurchased shares and increased dividends by 20%.

Positive

• Net income surged 86.4% year-over-year to $6.4 million for Q2 2021.
• ROAA and ROACE reached record highs of 1.22% and 12.62%, up from 0.69% and 7.27% in Q2 2020.
• Dividends increased by 20%, from $0.125 to $0.15 per share.
• Noninterest-bearing deposits increased by $61.1 million, bolstering liquidity and fee income potential.

Negative

• Net interest margin decreased from 3.50% to 3.37%, indicating potential ongoing pressure on margins.
• Provision for loan losses decreased significantly, but concerns remain about potential future defaults from deferred loans.

Second Quarter 2021 Highlights

• Net Income: Net income totaled $6.4 million for the quarter ended June 30, 2021, or $1.10 per diluted common share compared to net income of $3.5 million or $0.59 per diluted common share for the quarter ended June 30, 2020. Net income totaled $12.7 million for the six months ended June 30, 2021, or $2.17 per diluted common share compared to net income of $6.2 million or $1.05 per diluted common share for the six months ended June 30, 2020.
• Overall Profitability: This is the third consecutive quarter of record return on average assets ("ROAA") performance for the Company. The Company’s ROAA and return on average common equity ("ROACE") were 1.22% and 12.62% for the three months ended June 30, 2021 compared to 0.69% and 7.27% for the three months ended June 30, 2020. The Company’s ROAA and ROACE were 1.22% and 12.57% for the six months ended June 30, 2021 compared to 0.65% and 6.64% for the six months ended June 30, 2020.
• Core Profitability: Pre-tax, pre-provision ("PTPP") ROAA and PTPP ROACE increased to 1.68% and 17.49% for the quarter ended June 30, 2021 compared to 1.62% and 17.03% for the quarter ended June 30, 2020. The Company's PTPP ROAA and PTPP ROACE increased to 1.68% and 17.41% during the first six months of 2021 compared to 1.57% and 15.95% for the same period in 2020.
• Net Interest Margin Compression: Net interest margin decreased 13 basis points from 3.50% for the first quarter of 2021 to 3.37% for the three months ended June 30, 2021. The current low interest-rate environment coupled with significant increases in on-balance sheet liquidity, purchases of lower-yielding investments and competition for loans is expected to put downward pressure on margins for the balance of 2021.
• Common Stock Repurchases: During the three months ended June 30, 2021, the Company repurchased 111,884 shares of common stock at an average price of $34.93 per share.
• Dividend Increase: The Company increased its dividends paid by 20% from $0.125 in the first quarter of 2021 to $0.15 in the second quarter of 2021.
• Customer Acquisition: The Bank has increased noninterest-bearing accounts by $61.1 million to $423.2 million or from 20.74% of deposits at December 31, 2020 to 22.18%% at June 30, 2021.
• Asset Quality Improvement

—  Non-accrual loans, OREO and TDRs to total assets decreased 36 basis points to 0.72% at June 30, 2021 from 1.08% at December 31, 2020. Classified assets decreased $7.4 million to $14.9 million at June 30, 2021 from $22.4 million at December 31, 2020.

—  At June 30, 2021, COVID-19 deferred loans decreased to $3.5 million, representing 0.16% of assets.

WALDORF, Md., July 22, 2021 (GLOBE NEWSWIRE) -- The Community Financial Corporation (NASDAQ: TCFC) (the “Company”), the holding company for Community Bank of the Chesapeake (the “Bank”), today reported its results of operations for the three and six months ended June 30, 2021. Net income for the three months ended June 30, 2021 was $6.4 million, or $1.10 per diluted common share compared with net income of $6.3 million, or $1.07 per diluted common share for the first quarter of 2021, and net income of $3.5 million or $0.59 per diluted common share for the quarter ended June 30, 2020. The Company reported net income for the six months ended June 30, 2021 of $12.7 million or diluted earnings per share of $2.17 compared to a net income for the comparable period of 2020 of $6.2 million or diluted earnings per share of $1.05. As a result of the COVID-19 pandemic, earnings for the six months ended June 30, 2020 were impacted by an increased provision for loan losses ("PLL") of $7.6 million compared to $0.6 million for the six months ended June 30, 2021.

Management Commentary

"During the three months ended June 30, 2021, we delivered our third consecutive quarter of record performance. In the first six months of 2021, we added two new product lines, closed a branch to better optimize our branch operations, improved asset quality and continued to drive operating efficiency by controlling expenses," stated William J. Pasenelli, Chief Executive Officer. "Our second quarter 2021 operating results were strong at a 1.22% ROAA. We believe that without U.S. Small Business Administration Paycheck Protection Program ("U.S. SBA PPP") income, ROAA would be lower by 10 to 12 basis points. We believe as we look forward that we have positioned our Company with a healthy balance sheet and a foundation for sustainable profitable operations that should enhance long-term shareholder value beyond the non-recurring income streams from the U.S. SBA PPP".

“Our business development teams continue to be successful sourcing noninterest-bearing accounts by returning to face to face interactions with customers and by leveraging technology and Fintech partnerships to better understand our customers' behaviors. In addition, we are taking advantage of market disintermediation as well as new customers acquired through COVID-19 government stimulus programs,” stated James M. Burke, President. "New account openings in the first half of the year have included a mix of retail and commercial accounts and have significantly exceeded the number of accounts we opened for new customers participating in the U.S. SBA PPP loan program. The increases in the numbers and dollars of noninterest-bearing accounts, from 20.74% of outstanding deposit balances at year end to 22.18% at June 30, 2021, provide a strong foundation for continued fee income improvement as well as help offset margin compression in the current volatile interest rate environment."

During March 2021, the Bank introduced a new residential mortgage program and retail and commercial credit card program that merge the technology and expertise of two proven FinTech firms with our business development team's demonstrated capabilities. The Company expects these programs to improve non-interest income and interest income in 2022-2023.

The Bank’s expansion into Virginia significantly contributed to our growth over the last five years. Fredericksburg, Spotsylvania and surrounding areas provide significant opportunities for continued organic growth supported by our efficient operating model and ability to leverage technology. At June 30, 2021, loans in the greater Fredericksburg, Virginia area accounted for approximately 40% of the Bank's outstanding portfolio loans, and Fredericksburg branch deposits were $84.7 million with an average cost of deposits of four basis points. On April 21, 2021, the Bank purchased its second location in Virginia at 5831 Plank Road, Spotsylvania. The full-service branch is expected to open in late 2021 and will provide banking, lending and wealth management services with a focus on digital banking.

Effective March 31, 2021, the Bank consolidated its St. Patrick's Drive branch in Waldorf, Maryland into the Bank's nearby main office branch. This realignment of our branches will enable the Company to serve a wider customer base. The net financial impact of the new Spotsylvania branch and the closing of the St. Patrick's Drive branch is expected to be neutral to the Company's expense run rate.

As previously disclosed on July 15, 2021, the Company completed the repurchase of the $7.0 million of shares of the Company’s common stock pursuant to the repurchase plan announced on October 20, 2020 (the “2020 Repurchase Plan”). The 2020 Repurchase Plan authorized the Company to repurchase up to 300,000 of the Company’s outstanding shares of common stock using up to $7.0 million of the proceeds the Company raised in its $20.0 million subordinated debt offering completed in October 2020. Between November 2020 and July 2021, 200,275 shares were purchased at a total cost of approximately $6.98 million or an average of $34.83 per share. As of July 15, 2021, the Company had 5,715,732 shares outstanding. The Company will continue to evaluate the use of additional capital management strategies to enhance overall shareholder value, including repurchasing some or all of the 99,725 shares remaining under the 2020 Repurchase Plan. Future plans to resume repurchases will be publicly announced.

Results of Operations

		(UNAUDITED)
		Three Months Ended June 30,
(dollars in thousands)		2021				2020				$ Change				% Change
Interest and dividend income		$	17,444			$	17,638			$	(194	)		(1.1	)	%
Interest expense		1,009				2,414				(1,405		)		(58.2	)	%
Net interest income		16,435				15,224				1,211				8.0		%
Provision for loan losses		291				3,500				(3,209		)		(91.7	)	%
Noninterest income		1,856				2,259				(403		)		(17.8	)	%
Noninterest expense		9,378				9,397				(19		)		(0.2	)	%
Income before income taxes		8,622				4,586				4,036				88.0		%
Income tax expense		2,190				1,136				1,054				92.8		%
Net income		$	6,432			$	3,450			$	2,982			86.4		%

		(UNAUDITED)
		Six Months Ended June 30,
(dollars in thousands)		2020				2019				$ Change				% Change
Interest and dividend income		$	35,122			$	35,677			$	(555	)		(1.6	)	%
Interest expense		2,178				6,100				(3,922		)		(64.3	)	%
Net interest income		32,944				29,577				3,367				11.4		%
Provision for loan losses		586				7,600				(7,014		)		(92.3	)	%
Noninterest income		4,216				4,380				(164		)		(3.7	)	%
Noninterest expense		19,526				19,080				446				2.3		%
Income before income taxes		17,048				7,277				9,771				134.3		%
Income tax expense		4,317				1,079				3,238				300.1		%
Net income		$	12,731			$	6,198			$	6,533			105.4		%

Net Interest Income

Net interest income increased for the three months ended June 30, 2021 compared to the three months ended June 30, 2020. Net interest margin of 3.37% for the three months ended June 30, 2021 increased three basis points from 3.34% for the comparable period. The increase in net interest income resulted primarily from decreases in interest expense from lower funding costs exceeding the impacts of lower interest-earning asset repricing.

Net interest income increased for the six months ended June 30, 2021 compared to the six months ended June 30, 2020. Net interest margin of 3.43% for the six months ended June 30, 2021 was four basis points higher than the 3.39% for the six months ended June 30, 2020. The increase in net interest income resulted primarily from decreases in interest expense from lower funding costs exceeding the impacts of lower interest-earning asset repricing. Interest earning asset yields decreased 42 basis points from 4.08% for the six months ended June 30, 2020 to 3.66% for the six months ended June 30, 2021. The Company’s cost of funds decreased 49 basis points from 0.72% for the six months ended June 30, 2020 to 0.23% for the six months ended June 30, 2021.

For the second quarter and first six months of 2021, interest income decreased from significantly lower asset yields partially offset by increased interest income from larger average balances and accelerated loan fee recognition following the forgiveness of U.S. SBA PPP loans. Interest income from the Company's participation in the U.S. SBA PPP program was $1.3 million and $3.1 million for the three and six months ended June 30, 2021 compared to $0.5 million and $0.5 million for the three and six months ended June 30, 2020. For the three and six months ended June 30, 2021, net interest margin increased 10 and 13 basis points as a result of net U.S. SBA PPP loan interest income and accelerated loan fee recognition compared to an increase of two basis points and no impact for the comparable periods in 2020. For the three months ended March 31, 2021, net interest margin of 3.50% increased 18 basis points as result of net U.S. SBA PPP loan interest income.

Due to a slightly liability-sensitive balance sheet, the Company's net interest margin was stable in 2020 after adjusting for U.S. SBA PPP loan and funding activity. The sharp decline in interest rates in 2020 and 2021 not only reduced interest income on floating-rate loans, liquid interest-earning assets and investments, but has also reduced competitive pressures and depositor expectations concerning deposit interest rates. The Company’s cost of funds continued to decrease during the second quarter of 2021. The prepayment of $30.0 million of FHLB advances with a 2.2% average rate in the last six months of 2020, the repricing of time deposits, the increase in noninterest-bearing accounts as a percentage of total deposits and lower costs for transaction deposit accounts all contributed to lowering the Bank's cost of funds in 2020 and 2021. Cost of funds decreased from 0.54% for the three months ended June 30, 2020 to 0.21% for the three months ended June 30, 2021. During the second quarter of 2021, the Company's cost of funds decreased four basis points from 0.25% for the three months ended March 31, 2021.

Excluding the acceleration of interest income with U.S. SBA PPP loan forgiveness, compression of our net interest margin is likely to continue in the third quarter of 2021 as interest-earning assets reprice faster than interest-bearing liabilities and the Bank continues to invest excess liquidity into securities. We expect U.S. SBA PPP loan forgiveness to positively impact margins and net interest income in the third and fourth quarters of 2021 with the recognition of remaining net deferred fees.

Noninterest Income

Noninterest income decreased for the three months ended June 30, 2021 compared to the three months ended June 30, 2020. The decrease for the comparable periods was primarily due to lower interest rate protection referral fee income and gains on the sale of investment securities in the second quarter of 2020, partially offset by increased fees on customer accounts. Noninterest income as a percentage of assets was 0.35% and 0.45%, respectively, for the three months ended June 30, 2021 and 2020.

Noninterest income decreased for the six months ended June 30, 2021 compared to the six months ended June 30, 2020. The decrease was primarily due to decreased interest rate protection referral fee income and a loss on the sale of impaired loans partially offset by increased service charges and miscellaneous fees. During the quarter ended March 31, 2021, the Bank sold non-accrual and classified commercial real estate and residential mortgage loans with an amortized cost, net of charge-offs, of $9.1 million and recognized a loss on the sale of $191,000. Noninterest income as a percentage of assets was 0.40% and 0.46%, respectively, for the six months ended June 30, 2021 and 2020.

Noninterest Expense

Noninterest expense for the three months ended June 30, 2021, was flat compared to the three months ended June 30, 2020 as increased compensation and benefits and professional fees were offset by decreased OREO expenses and FDIC insurance. Compensation and benefits increased for the comparable periods as no costs were deferred for the origination of PPP loans in the second quarter of 2021 compared with the deferral of $0.4 million in the second quarter of 2020. FDIC insurance has decreased due to improved balance sheet credit trends. The Company's projected quarterly expense run rate for the third quarter of 2021 remains between $9.1 and $9.3 million.

The Company’s efficiency ratio was 51.27% for the three months ended June 30, 2021 compared to 53.75% for the three months ended June 30, 2020. The Company’s net operating expense ratio was 1.42% for the three months ended June 30, 2021 compared to 1.43% for the three months ended June 30, 2020. The efficiency and net operating expense ratios have improved (decreased) as the Company has been able to generate more noninterest income while controlling expense growth.

During the first quarter of 2021, the Company reported an expense of $1.3 million related to an isolated wire transfer fraud incident. Our investigation has found no evidence that information systems of the Bank were compromised or that employee fraud was involved. In the second quarter of 2021, the Company recovered $0.1 million of the funds transferred and submitted an insurance claim which could result in a recovery of a portion of the expense. Any recovery of insurance proceeds would be recognized in the quarter received.

Noninterest expense increased $0.4 million or 2.3% for the six months ended June 30, 2021 compared to the six months ended June 30, 2020. The increase in noninterest expense for the comparable periods was primarily due to the $1.3 million wire fraud reported in the first quarter, increases in professional fees and a small increase in compensation and benefits due to fewer deferred costs allocated for PPP loans. Year to date compensation and benefits for the six months ended June 30, 2021 and 2020 were reduced $0.25 million and $0.40 million for the allocation of deferred costs for U.S. SBA PPP loans originated. The increase in noninterest expense was primarily offset by a reduction in OREO expenses. OREO expenses have moderated as the Bank has reduced foreclosed assets over the last 12 months from $3.7 million at June 30, 2020 to $1.5 million at June 30, 2021.

The Company’s efficiency ratio was 52.55% for the six months ended June 30, 2021 compared to 56.19% for the six months ended June 30, 2020. The Company’s net operating expense ratio was 1.46% at June 30, 2021 compared to 1.55% at June 30, 2020. The efficiency and net operating expense ratios have improved (decreased) as the Company has been able to generate more noninterest income while controlling expense growth.

Income Tax Expense

For the three and six months ended June 30, 2021 the effective tax rate was 25.4% and 25.3%. The Company’s consolidated effective tax rate was 24.8% and 14.8% for the three and six months ended June 30, 2020. The Company's new state apportionment approach was implemented during the first quarter of 2020 and included the impact of amended income tax filings of the Company and the Bank. Management evaluated the tax position and determined the change in tax position qualified as a change in estimate under FASB ASC Section 250. The following table shows a breakdown of income tax expense for the six months ended June 30, 2020 split between the apportionment adjustment and a normalized 2020 income tax provision:

		(UNAUDITED)
		Six Months Ended June 30, 2020
(dollars in thousands)		Tax Provision				Effective Tax Rate
Income tax apportionment adjustment		$	(743	)		(10.2	)	%
Income taxes before apportionment adjustment		1,822				25.0		%
Income tax expense as reported		$	1,079			14.8		%
Income before income taxes		$	7,277

Balance Sheet

Assets

Total assets increased $168.6 million, or 8.3%, to $2.20 billion at June 30, 2021 compared to total assets of $2.03 billion at December 31, 2020 primarily due to increased cash of $61.8 million and investments of $100.8 million. The increase in cash and investments was principally driven by the cash received from the SBA from the forgiveness of U.S. SBA PPP loans, as well as an increase to our customer deposits accounts. In addition, net loans increased $8.3 million. The Company’s loan pipeline was $154.7 million at June 30, 2021.

During the second quarter of 2021, total net loans, which include portfolio loans and U.S. SBA PPP loans, increased $0.1 million to $1,602.4 million at June 30, 2021. Gross portfolio loans increased 7.1% annualized or $26.7 million from $1,507.2 million at March 31, 2021 to $1,533.9 million at June 30, 2021. Portfolio loans include all loan portfolios except the U.S. SBA PPP loan portfolio.

Non-owner occupied commercial real estate as a percentage of risk-based capital at June 30, 2021 and December 31, 2020 were $770 million or 329% and $696 million or 316%, respectively. Construction loans as a percentage of risk-based capital at June 30, 2021 and December 31, 2020 were $114 million or 49% and $139 million or 63%, respectively.

Funding

The Bank uses retail deposits and wholesale funding. Retail deposits continue to be the most significant source of funds totaling $1,900.1 million or 98.2% of funding at June 30, 2021 compared to $1,737.6 million or 98.0% of funding at December 31, 2020. Wholesale funding, which consisted of FHLB advances and brokered deposits, were $35.3 million or 1.8% of funding at June 30, 2021 compared to $35.3 million or 2.0% of funding at December 31, 2020.

Total deposits increased $162.5 million or 9.3% (18.6% annualized) at June 30, 2021 compared to December 31, 2020. The increase reflected a $175.0 million increased to transaction deposits offsetting a $12.5 million decreased to time deposits. Non-interest-bearing demand deposits increased $61.1 million or 16.9% at June 30, 2021, representing 22.2% of deposits, compared to 20.7% of deposits at December 31, 2020. Customer deposit balances have increased during the last 12 months due to customer acquisition as well as lower levels of consumer and business spending related to the COVID-19 pandemic.

Stockholders' Equity and Regulatory Capital

During the six months ended June 30, 2021, total stockholders’ equity increased $5.9 million due to net income of $12.7 million and $0.4 million in connection with stock-based compensation and ESOP activity. These increases to equity were partially offset by common stock repurchases of $4.2 million, common dividends paid of $1.5 million and a decrease in accumulated other comprehensive income of $1.4 million due to a reduction in unrealized gains in the investment portfolio.

The Company's common equity to assets ratio decreased to 9.29% at June 30, 2021 from 9.77% at December 31, 2020. The Company’s ratio of tangible common equity ("TCE") to tangible assets decreased to 8.79% at June 30, 2021 from 9.22% at December 31, 2020 (see Non-GAAP reconciliation schedules). The decrease in the TCE ratio is due primarily to significant increases in cash, investments and loans.

In April 2020, banking regulators issued an interim final rule that excluded U.S. SBA PPP loans pledged under the Paycheck Protection Program Liquidity Facility ("PPPLF") from the calculation of the leverage ratio. The Bank did not have any PPPLF advances at June 30, 2021 and December 31, 2020. In addition, the interim final rule excluded U.S. SBA PPP loans from the calculation of risk-based capital ratios by assigning a zero percent risk weight. The Company remains well capitalized at June 30, 2021 with a Tier 1 capital to average assets ("leverage ratio") of 9.57% at June 30, 2021 compared to 9.56% at December 31, 2020.

Asset Quality

Allowance for loan losses ("ALLL") and provision for loan losses ("PLL") and Non-Performing Assets

The Company's allowance methodology considers quantitative historical loss factors and qualitative factors to determine the estimated level of incurred losses in the Company's loan portfolios. The ALLL increased in 2020 primarily due to the economic effects of the COVID-19 pandemic and continues to provide for economic uncertainty. ALLL levels decreased to 1.20% of portfolio loans at June 30, 2021 compared to 1.29% at December 31, 2020. At and for the three months ended June 30, 2021, the Company's ALLL decreased $0.9 million or 4.7% to $18.5 million at June 30, 2021 from $19.4 million at December 31, 2020.

The Company recorded $0.6 million of PLL for the six months ended June 30, 2021 compared to $7.6 million for the six months ended months ended June 30, 2020. Net charge-offs also decreased for the comparable periods from $2.2 million in the first six months of 2020 to $1.5 million for the six months ended June 30, 2021.

The Company's general allowance decreased from $18.1 million at December 31, 2020 to $17.7 million at June 30, 2021. The decrease in the general allowance was primarily due to improvements in qualitative factors partially offset by higher charge-offs in the first six months of 2021. During the six months ended months ended June 30, 2021, the Bank sold non-accrual and classified commercial real estate and residential mortgage loans with an amortized cost of $9.1 million, net of charge-offs of $1.4 million, and recognized a loss on the sale of $191,000. The Company's sale of these impaired loans decreased the specific reserve, improved asset quality and improved several ALLL qualitative factors.

Management believes that loans included in the COVID-19 deferral program in 2020 and 2021 are more likely to default in the future and that the identification and resolution of problem credits could be delayed. In our evaluation of current and previously deferred loans, we considered the length of the deferral period, the type and amount of collateral and customer industries. Consistent with regulatory guidance, if new information during the deferral period indicates that there is evidence of default, the Bank may change the classification rating (e.g., change from passing credit to substandard) and accrual status (e.g., change from accrual to non-accrual status) as deemed appropriate. As of June 30, 2021, $3.5 million or 0.2% of gross portfolio loans had deferral agreements, a decrease of $31.9 million from the $35.4 million or 2.4% of gross portfolio loans at December 31, 2020. As of June 30, 2021 and December 31, 2020, there were no loans and $3.4 million of COVID-19 deferred loans deemed to be non-accrual and substandard based on reviews.

Gross U.S. SBA PPP loans at June 30, 2021 totaled $89.1 million and 654 loans, a decrease of $21.2 million compared to December 31, 2020. No credit issues are anticipated with U.S. SBA PPP loans as they are guaranteed by the SBA and the Bank's allowance for loan loss does not include an allowance for U.S. SBA PPP loans.

Management believes that the allowance is adequate at June 30, 2021.

During 2020, classified assets decreased $12.3 million. The sale of $9.1 million in impaired loans during the first quarter of 2021 reflects management's intent to expeditiously resolve non-performing or substandard credits that are not likely to become performing or passing credits in a reasonable timeframe. Classified assets decreased $7.4 million from $22.4 million at December 31, 2020 to $14.9 million at June 30, 2021. Management considers classified assets to be an important measure of asset quality. The Company's risk rating process for classified loans is an important input into the Company's allowance methodology. Risk ratings are expected to be an important indicator in assessing ongoing credit risks of COVID-19 deferred loans.

Non-accrual loans and OREO to total gross portfolio loans and OREO decreased 42 basis points from 1.42% at December 31, 2020 to 1.00% at June 30, 2021. Non-accrual loans, OREO and TDRs to total assets decreased 36 basis points from 1.08% at December 31, 2020 to 0.72% at June 30, 2021. 

Non-accrual loans decreased $4.4 million from $18.2 million at December 31, 2020 to $13.8 million at June 30, 2021. Non-accrual loans of $8.0 million (58%) were current with all payments of principal and interest with specific reserves of $42,000 at June 30, 2021. Delinquent non-accrual loans were $5.8 million (42%) with specific reserves of $0.7 million at June 30, 2021. The OREO balance decreased $1.6 million from $3.1 million at December 31, 2020 to $1.5 million at June 30, 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 $2.2 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” and “intend” or future or conditional verbs such as “will,” “would,” “should,” “could” or “may.” Statements in this release that are not strictly historical are forward-looking and are based upon current expectations that may differ materially from actual results. These forward-looking statements include, without limitation, those relating to the Company’s and 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, and any statements of the plans and objectives of management for future operations products or services, including the expected benefits from, and/or the execution of integration plans relating to any acquisition we have undertaking or that we undertake in the future; plans and cost savings regarding branch closings or consolidation; any statement of expectation or belief; projections related to certain financial metrics; and any statement of assumptions underlying the foregoing. These forward-looking statements express management’s current expectations or forecasts of future events, results and conditions, and by their nature are subject to and involve risks and uncertainties that could cause actual results to differ materially from those anticipated by the statements made herein. Factors that might cause actual results to differ materially from those made in such statements include, but are not limited to: risks, uncertainties and other factors relating to the COVID-19 pandemic (including the length of time that the pandemic continues, the ability of states and local governments to successfully implement the lifting of restrictions on movement and the potential imposition of further restrictions on movement and travel in the future, the effect of the pandemic on the general economy and on the businesses of our borrowers and their ability to make payments on their obligations; the remedial actions and stimulus measures adopted by federal, state and local governments, and the inability of employees to work due to illness, quarantine, or government mandates); the synergies and other expected financial benefits from any acquisition that we have undertaken or may undertake in the future; may or may not be realized within the expected time frames; changes in the Company's or the Bank's strategy, costs or difficulties related to integration matters might be greater than expected; availability of and costs associated with obtaining adequate and timely sources of liquidity; the ability to maintain credit quality; general economic trends; changes in interest rates; loss of deposits and loan demand to other financial institutions; substantial changes in financial markets; changes in real estate value and the real estate market; regulatory changes; the impact of government shutdowns or sequestration; the possibility of unforeseen events affecting the industry generally; the uncertainties associated with newly developed or acquired operations; the outcome of pending or threatened litigation, or of matters before regulatory agencies, whether currently existing or commencing in the future; market disruptions and other effects of terrorist activities; and the matters described in “Item 1A Risk Factors” in the Company’s Annual Report on Form 10-K for the Year Ended December 31, 2020, 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 June 30, 2021. 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, 2020.

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

SUPPLEMENTAL QUARTERLY FINANCIAL DATA
CONSOLIDATED INCOME STATEMENT (UNAUDITED)

		Three Months Ended
(dollars in thousands)		June 30, 2021				March 31, 2021				December 31, 2020				September 30, 2020				June 30, 2020
Interest and Dividend Income
Loans, including fees		$	16,320			$	16,592			$	16,776			$	16,176			$	16,277
Interest and dividends on securities		1,101				1,064				1,091				1,269				1,341
Interest on deposits with banks		23				22				46				38				20
Total Interest and Dividend Income		17,444				17,678				17,913				17,483				17,638
Interest Expense
Deposits		640				802				1,166				1,534				1,937
Short-term borrowings		—				—				—				14				28
Long-term debt		369				367				775				567				449
Total Interest Expense		1,009				1,169				1,941				2,115				2,414
Net Interest Income ("NII")		16,435				16,509				15,972				15,368				15,224
Provision for loan losses		291				295				600				2,500				3,500
NII After Provision For Loan Losses		16,144				16,214				15,372				12,868				11,724
Noninterest Income
Loan appraisal, credit, and misc. charges		44				198				76				49				35
Gain on sale or disposition of assets		68				—				—				6				—
Net gains on sale of investment securities		—				586				714				229				112
Unrealized gain (losses) on equity securities		13				(85		)		(14		)		—				40
Income from bank owned life insurance		218				214				220				222				220
Service charges		892				1,187				960				839				709
Referral fee income		621				451				414				321				1,143
Loss on sale of loans		—				(191		)		—				—				—
Total Noninterest Income		1,856				2,360				2,370				1,666				2,259
Noninterest Expense
Compensation and benefits		5,332				4,788				4,552				5,099				4,714
OREO valuation allowance and expenses		488				181				897				421				1,100
Sub Total		5,820				4,969				5,449				5,520				5,814
Operating Expenses
Occupancy expense		688				761				806				734				736
Advertising		148				79				145				129				130
Data processing expense		990				936				829				990				924
Professional fees		604				640				658				652				477
Depreciation of premises and equipment		135				147				154				142				151
FDIC Insurance		140				252				260				249				260
Core deposit intangible amortization		126				133				139				144				151
Other		727				2,231				1,032				891				754
Total Operating Expenses		3,558				5,179				4,023				3,931				3,583
Total Noninterest Expense		9,378				10,148				9,472				9,451				9,397
Income before income taxes		8,622				8,426				8,270				5,083				4,586
Income tax expense		2,190				2,127				2,131				1,284				1,136
Net Income		$	6,432			$	6,299			$	6,139			$	3,799			$	3,450

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

(dollars in thousands, except per share amounts)		June 30, 2021				March 31, 2021				December 31, 2020				September 30, 2020				June 30, 2020
Assets
Cash and due from banks		$	40,881			$	126,834			$	56,887			$	93,130			$	103,914
Federal funds sold		79,404				43,614				—				69,431				29,456
Interest-bearing deposits with banks		18,626				17,390				20,178				25,132				13,051
Securities available for sale ("AFS"), at fair value		347,678				253,348				246,105				229,620				234,982
Equity securities carried at fair value through income		4,814				4,787				4,855				4,851				4,831
Non-marketable equity securities held in other financial institutions		207				207				207				209				209
Federal Home Loan Bank ("FHLB") stock - at cost		2,036				2,036				2,777				3,415				4,691
Net U.S. Small Business Administration ("SBA") Paycheck Protection ("PPP") Loans		86,482				112,485				107,960				127,811				125,638
Portfolio Loans Receivable net of allowance for loan losses of $18,516, $18,256, $19,424, $18,829, and $16,319		1,515,893				1,489,806				1,486,115				1,479,313				1,478,498
Net Loans		1,602,375				1,602,291				1,594,075				1,607,124				1,604,136
Goodwill		10,835				10,835				10,835				10,835				10,835
Premises and equipment, net		21,630				20,540				20,271				20,671				20,972
Premises and equipment held for sale		430				430				430				430				430
Other real estate owned ("OREO")		1,536				2,329				3,109				3,998				3,695
Accrued interest receivable		6,590				7,337				8,717				8,975				6,773
Investment in bank owned life insurance		38,493				38,275				38,061				37,841				37,619
Core deposit intangible		1,267				1,394				1,527				1,666				1,810
Net deferred tax assets		8,139				8,671				7,909				7,307				6,565
Right of use assets - operating leases		6,305				6,391				7,831				8,005				8,132
Other assets		3,813				2,822				2,665				4,797				1,655
Total Assets		$	2,195,059			$	2,149,531			$	2,026,439			$	2,137,437			$	2,093,756
Liabilities and Stockholders' Equity
Liabilities
Deposits
Non-interest-bearing deposits		$	423,165			$	406,319			$	362,079			$	360,839			$	356,196
Interest-bearing deposits		1,484,973				1,461,577				1,383,523				1,418,767				1,314,168
Total deposits		1,908,138				1,867,896				1,745,602				1,779,606				1,670,364
Short-term borrowings		—				—				—				—				5,000
Long-term debt		27,267				27,285				27,302				42,319				67,336
Paycheck Protection Program Liquidity Facility ("PPPLF") Advance		—				—				—				85,893				126,801
Guaranteed preferred beneficial interest in junior subordinated debentures ("TRUPs")		12,000				12,000				12,000				12,000				12,000
Subordinated notes - 4.75%		19,482				19,468				19,526				—				—
Lease liabilities - operating leases		6,512				6,614				8,088				8,193				8,296
Accrued expenses and other liabilities		17,698				15,509				15,908				16,576				14,517
Total Liabilities		1,991,097				1,948,772				1,828,426				1,944,587				1,904,314
Stockholders' Equity
Common stock		58				59				59				59				59
Additional paid in capital		96,411				96,181				95,965				95,799				95,687
Retained earnings		104,889				103,294				97,944				92,814				89,781
Accumulated other comprehensive income		3,063				1,684				4,504				4,780				4,517
Unearned ESOP shares		(459		)		(459		)		(459		)		(602		)		(602		)
Total Stockholders' Equity		203,962				200,759				198,013				192,850				189,442
Total Liabilities and Stockholders' Equity		$	2,195,059			$	2,149,531			$	2,026,439			$	2,137,437			$	2,093,756
Common shares issued and outstanding		5,786,928				5,897,685				5,903,613				5,911,940				5,911,715

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

		Three Months Ended
(dollars in thousands, except per share amounts)		June 30, 2021				March 31, 2021				December 31, 2020				September 30, 2020				June 30, 2020
KEY OPERATING RATIOS
Return on average assets ("ROAA")		1.22		%		1.22		%		1.18		%		0.73		%		0.69		%
Pre-tax pre-provision ROAA**		1.68		%		1.68		%		1.71		%		1.46		%		1.62		%
Return on average common equity ("ROACE")		12.62		%		12.53		%		12.51		%		7.86		%		7.27		%
Pre-tax pre-provision ROACE**		17.49		%		17.34		%		18.08		%		15.69		%		17.03		%
Return on average tangible common equity ("ROATCE")**		13.62		%		13.56		%		13.58		%		8.65		%		8.05		%
Average total equity to average total assets		9.63		%		9.71		%		9.46		%		9.33		%		9.52		%
Interest rate spread		3.30		%		3.43		%		3.29		%		3.15		%		3.21		%
Net interest margin		3.37		%		3.50		%		3.40		%		3.27		%		3.34		%
Cost of funds		0.21		%		0.25		%		0.42		%		0.46		%		0.54		%
Cost of deposits		0.14		%		0.18		%		0.26		%		0.37		%		0.48		%
Cost of debt		2.51		%		2.50		%		3.45		%		1.16		%		1.06		%
Efficiency ratio		51.27		%		53.78		%		51.64		%		55.48		%		53.75		%
Non-interest expense to average assets		1.77		%		1.96		%		1.83		%		1.82		%		1.88		%
Net operating expense to average assets		1.42		%		1.50		%		1.37		%		1.50		%		1.43		%
Average interest-earning assets to average interest-bearing liabilities		131.36		%		128.84		%		126.18		%		125.40		%		125.51		%
Net charge-offs to average portfolio loans		0.01		%		0.40		%		0.00		%		0.00		%		0.61		%
COMMON SHARE DATA
Basic net income per common share		$	1.10			$	1.07			$	1.04			$	0.64			$	0.59
Diluted net income per common share		$	1.10			$	1.07			$	1.04			$	0.64			$	0.59
Cash dividends paid per common share		$	0.150			$	0.125			$	0.125			$	0.125			$	0.125
Basic - weighted average common shares outstanding		5,845,009				5,888,250				5,892,751				5,895,074				5,894,009
Diluted - weighted average common shares outstanding		5,856,954				5,897,698				5,894,494				5,895,074				5,894,009
ASSET QUALITY
Total assets		$	2,195,059			$	2,149,531			$	2,026,439			$	2,137,437			$	2,093,756
Gross portfolio loans (1)		1,533,876				1,507,183				1,504,275				1,496,532				1,492,745
Classified assets		14,918				16,145				22,358				24,600				25,115
Allowance for loan losses		18,516				18,256				19,424				18,829				16,319
Past due loans - 31 to 89 days		101				1,373				179				838				5,843
Past due loans >=90 days		5,836				5,453				11,965				17,230				20,072
Total past due loans (2) (3)		5,937				6,826				12,144				18,068				25,915
Non-accrual loans (4)		13,802				13,623				18,222				20,148				22,896
Accruing troubled debt restructures ("TDRs")		503				504				572				573				593
Other real estate owned ("OREO")		1,536				2,329				3,109				3,998				3,695
Non-accrual loans, OREO and TDRs		$	15,841			$	16,456			$	21,903			$	24,719			$	27,184

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

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

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

(3) There were no COVID-19 deferred loans in process as of July 22, 2021 that were reported as delinquent as of June 30, 2021.

(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 June 30, 2021 and December 31, 2020, the Company had current non-accrual loans of $8.0 million and $6.3 million, respectively.

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

		Three Months Ended
(dollars in thousands, except per share amounts)		June 30, 2021				March 31, 2021				December 31, 2020				September 30, 2020				June 30, 2020
ASSET QUALITY RATIOS (1)
Classified assets to total assets		0.68		%		0.75		%		1.10		%		1.15		%		1.20		%
Classified assets to risk-based capital		6.24		%		6.81		%		9.61		%		11.89		%		12.49		%
Allowance for loan losses to total loans		1.21		%		1.21		%		1.29		%		1.26		%		1.09		%
Allowance for loan losses to non-accrual loans		134.15		%		134.01		%		106.60		%		93.45		%		71.27		%
Past due loans - 31 to 89 days to total loans		0.01		%		0.09		%		0.01		%		0.06		%		0.39		%
Past due loans >=90 days to total loans		0.38		%		0.36		%		0.80		%		1.15		%		1.34		%
Total past due (delinquency) to total loans		0.39		%		0.45		%		0.81		%		1.21		%		1.74		%
Non-accrual loans to total loans		0.90		%		0.90		%		1.21		%		1.35		%		1.53		%
Non-accrual loans and TDRs to total loans		0.93		%		0.94		%		1.25		%		1.38		%		1.57		%
Non-accrual loans and OREO to total assets		0.70		%		0.74		%		1.05		%		1.13		%		1.27		%
Non-accrual loans and OREO to total loans and OREO		1.00		%		1.06		%		1.42		%		1.61		%		1.78		%
Non-accrual loans, OREO and TDRs to total assets		0.72		%		0.77		%		1.08		%		1.16		%		1.30		%
COMMON SHARE DATA
Book value per common share		$	35.25			$	34.04			$	33.54			$	32.62			$	32.05
Tangible book value per common share**		$	33.15			$	31.97			$	31.45			$	30.51			$	29.91
Common shares outstanding at end of period		5,786,928				5,897,685				5,903,613				5,911,940				5,911,715
OTHER DATA
Full-time equivalent employees		189				192				189				189				194
Branches		12				11				12				12				12
Loan Production Offices		4				4				4				4				4
CAPITAL RATIOS
Tier 1 capital to average assets		9.57		%		9.70		%		9.56		%		9.73		%		9.76		%
Tier 1 common capital to risk-weighted assets		11.56		%		11.72		%		11.47		%		11.11		%		11.12		%
Tier 1 capital to risk-weighted assets		12.30		%		12.47		%		12.23		%		11.87		%		11.89		%
Total risk-based capital to risk-weighted assets		14.62		%		14.83		%		14.69		%		13.06		%		12.94		%
Common equity to assets		9.29		%		9.34		%		9.77		%		9.02		%		9.05		%
Tangible common equity to tangible assets **		8.79		%		8.82		%		9.22		%		8.49		%		8.50		%

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

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

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

		Six Months Ended June 30,
(dollars in thousands)		2021				2020
Interest and Dividend Income
Loans, including fees		$	32,912			$	32,779
Interest and dividends on securities		2,165				2,810
Interest on deposits with banks		45				88
Total Interest and Dividend Income		35,122				35,677
Interest Expense
Deposits		1,442				4,981
Short-term borrowings		—				97
Long-term debt		736				1,022
Total Interest Expense		2,178				6,100
Net Interest Income ("NII")		32,944				29,577
Provision for loan losses		586				7,600
NII After Provision For Loan Losses		32,358				21,977
Noninterest Income
Loan appraisal, credit, and misc. charges		242				49
Gain on sale or disposition of assets		68				—
Net gains on sale of investment securities		586				441
Unrealized gain (loss) on equity securities		(72		)		115
Income from bank owned life insurance		432				439
Service charges		2,079				1,691
Referral fee income		1,072				1,645
Loss on sale of loans		(191		)		—
Total Noninterest Income		4,216				4,380
Noninterest Expense
Compensation and benefits		10,120				9,902
OREO valuation allowance and expenses		669				1,882
Sub-total		10,789				11,784
Operating Expense
Occupancy expense		1,449				1,470
Advertising		227				251
Data processing expense		1,926				1,852
Professional fees		1,244				1,103
Depreciation of premises and equipment		282				309
FDIC Insurance		392				430
Core deposit intangible amortization		259				308
Other		2,958				1,573
Total Operating Expense		8,737				7,296
Total Noninterest Expense		19,526				19,080
Income before income taxes		17,048				7,277
Income tax expense		4,317				1,079
Net Income		$	12,731			$	6,198

SUPPLEMENTAL YEAR TO DATE FINANCIAL DATA (UNAUDITED)

		Six Months Ended June 30,
		2021				2020
KEY OPERATING RATIOS
Return on average assets ("ROAA")		1.22		%		0.65		%
Pre-tax pre-provision ROAA**		1.68		%		1.57		%
Return on average common equity ("ROACE")		12.57		%		6.64		%
Pre-tax pre-provision ROACE**		17.41		%		15.95		%
Return on average tangible common equity ("ROATCE")**		13.59		%		7.44		%
Average total equity to average total assets		9.67		%		9.84		%
Interest rate spread		3.36		%		3.21		%
Net interest margin		3.43		%		3.39		%
Cost of funds		0.23		%		0.72		%
Cost of deposits		0.16		%		0.64		%
Cost of debt		2.50		%		1.61		%
Efficiency ratio		52.55		%		56.19		%
Non-interest expense to average assets		1.87		%		2.01		%
Net operating expense to average assets		1.46		%		1.55		%
Average interest-earning assets to average interest-bearing liabilities		130.12		%		124.99		%
Net charge-offs to average portfolio loans		0.20		%		0.30		%
COMMON SHARE DATA
Basic net income per common share		$	2.17			$	1.05
Diluted net income per common share		$	2.17			$	1.05
Cash dividends paid per common share		$	0.28			$	0.25
Weighted average common shares outstanding:
Basic		5,866,510				5,890,607
Diluted		5,877,698				5,890,607

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

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)		June 30, 2021				March 31, 2021				December 31, 2020				September 30, 2020				June 30, 2020
Total assets		$	2,195,059			$	2,149,531			$	2,026,439			$	2,137,437			$	2,093,756
Less: intangible assets
Goodwill		10,835				10,835				10,835				10,835				10,835
Core deposit intangible		1,267				1,394				1,527				1,666				1,810
Total intangible assets		12,102				12,229				12,362				12,501				12,645
Tangible assets		$	2,182,957			$	2,137,302			$	2,014,077			$	2,124,936			$	2,081,111
Total common equity		$	203,962			$	200,759			$	198,013			$	192,850			$	189,442
Less: intangible assets		12,102				12,229				12,362				12,501				12,645
Tangible common equity		$	191,860			$	188,530			$	185,651			$	180,349			$	176,797
Common shares outstanding at end of period		5,786,928				5,897,685				5,903,613				5,911,940				5,911,715
Common equity to assets		9.29		%		9.34		%		9.77		%		9.02		%		9.05		%
Tangible common equity to tangible assets		8.79		%		8.82		%		9.22		%		8.49		%		8.50		%
Common book value per share		$	35.25			$	34.04			$	33.54			$	32.62			$	32.05
Tangible common book value per share		$	33.15			$	31.97			$	31.45			$	30.51			$	29.91

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																				Six Months Ended
(dollars in thousands)		June 30, 2021				March 31, 2021				December 31, 2020				September 30, 2020				June 30, 2020				June 30, 2021				June 30, 2020
Net income (as reported)		$	6,432			$	6,299			$	6,139			$	3,799			$	3,450			$	12,731			$	6,198
Provision for loan losses		291				295				600				2,500				3,500				586				7,600
Income tax expenses		2,190				2,127				2,131				1,284				1,136				4,317				1,079
Non-GAAP PTPP income		$	8,913			$	8,721			$	8,870			$	7,583			$	8,086			$	17,634			$	14,877
ROAA		1.22		%		1.22		%		1.18		%		0.73		%		0.69		%		1.22		%		0.65		%
Pre-tax pre-provision ROAA		1.68		%		1.68		%		1.71		%		1.46		%		1.62		%		1.68		%		1.57		%
ROACE		12.62		%		12.53		%		12.51		%		7.86		%		7.27		%		12.57		%		6.64		%
Pre-tax pre-provision ROACE		17.49		%		17.34		%		18.08		%		15.69		%		17.03		%		17.41		%		15.95		%
Average assets		$	2,116,939			$	2,070,575			$	2,074,707			$	2,071,487			$	1,995,552			$	2,093,886			$	1,896,488
Average equity		$	203,893			$	201,124			$	196,279			$	193,351			$	189,890			$	202,516			$	186,580

		Three Months Ended																				Six Months Ended
(dollars in thousands)		June 30, 2021				March 31, 2021				December 31, 2020				September 30, 2020				June 30, 2020				June 30, 2021				June 30, 2020
Net income (as reported)		$	6,432			$	6,299			$	6,139			$	3,799			$	3,450			$	12,731			$	6,198
Core deposit intangible amortization (net of tax)		94				99				103				108				114				193				262
Net earnings applicable to common shareholders		$	6,526			$	6,398			$	6,242			$	3,907			$	3,564			$	12,924			$	6,460
ROATCE		13.62		%		13.56		%		13.58		%		8.65		%		8.05		%		13.59		%		7.44		%
Average tangible common equity		$	191,708			$	188,808			$	183,827			$	180,755			$	177,146			$	190,266			$	173,759

AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME (UNAUDITED)

		For the Three Months Ended June 30,																						For the Three Months Ended
		2021											2020											June 30, 2021											March 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		$	1,089,781			$	10,953			4.02	%		$	981,188			$	10,537			4.30	%		$	1,089,781			$	10,953			4.02	%		$	1,059,803			$	10,696			4.04	%
Residential first mortgages		109,296				838				3.07	%		168,958				1,397				3.31	%		109,296				838				3.07	%		124,984				914				2.93	%
Residential rentals		139,080				1,410				4.06	%		131,018				1,521				4.64	%		139,080				1,410				4.06	%		139,220				1,445				4.15	%
Construction and land development		38,315				425				4.44	%		39,856				445				4.47	%		38,315				425				4.44	%		36,091				402				4.46	%
Home equity and second mortgages		29,061				251				3.45	%		35,135				318				3.62	%		29,061				251				3.45	%		29,272				248				3.39	%
Commercial and equipment loans		104,117				1,108				4.26	%		131,186				1,554				4.74	%		104,117				1,108				4.26	%		105,284				1,070				4.07	%
U.S. SBA PPP loans		104,426				1,318				5.05	%		90,132				493				2.19	%		104,426				1,318				5.05	%		116,003				1,802				6.21	%
Consumer loans		1,425				17				4.77	%		1,119				12				4.29	%		1,425				17				4.77	%		1,320				15				4.55	%
Allowance for loan losses		(18,265		)		—				0.00	%		(15,597		)		—				0.00	%		(18,265		)		—				0.00	%		(19,614		)		—				0.00	%
Loan portfolio (1)		$	1,597,236			$	16,320			4.09	%		$	1,562,995			$	16,277			4.17	%		$	1,597,236			$	16,320			4.09	%		$	1,592,363			$	16,592			4.17	%
Taxable investment securities		276,019				1,020				1.48	%		211,917				1,248				2.36	%		276,019				1,020				1.48	%		229,810				951				1.66	%
Nontaxable investment securities		15,559				81				2.08	%		12,586				93				2.96	%		15,559				81				2.08	%		20,841				114				2.19	%
Interest-bearing deposits in other banks		28,844				13				0.18	%		17,384				11				0.25	%		28,844				13				0.18	%		25,064				14				0.22	%
Federal funds sold		34,778				10				0.12	%		15,893				9				0.23	%		34,778				10				0.12	%		18,721				7				0.15	%
Total interest-earning assets		1,952,436				17,444				3.57	%		1,820,775				17,638				3.87	%		1,952,436				17,444				3.57	%		1,886,799				17,678				3.75	%
Cash and cash equivalents		65,897											73,206											65,897											82,669
Goodwill		10,835											10,835											10,835											10,835
Core deposit intangible		1,350											1,909											1,350											1,481
Other assets		86,421											88,827											86,421											88,791
Total Assets		$	2,116,939										$	1,995,552										$	2,116,939										$	2,070,575
Liabilities and Stockholders' Equity
Noninterest-bearing demand deposits		$	406,166			$	—			0.00	%		$	332,642			$	—			0.00	%		$	406,166			$	—			0.00	%		$	381,059			$	—			0.00	%
Interest-bearing deposits
Savings		105,814				13				0.05	%		81,019				30				0.15	%		105,814				13				0.05	%		101,782				13				0.05	%
Interest-bearing demand and money market accounts		977,201				185				0.08	%		816,836				481				0.24	%		977,201				185				0.08	%		952,554				195				0.08	%
Certificates of deposit		344,533				442				0.51	%		373,129				1,426				1.53	%		344,533				442				0.51	%		351,365				594				0.68	%
Total interest-bearing deposits		1,427,548				640				0.18	%		1,270,984				1,937				0.61	%		1,427,548				640				0.18	%		1,405,701				802				0.23	%
Total deposits		1,833,714				640				0.14	%		1,603,626				1,937				0.48	%		1,833,714				640				0.14	%		1,786,760				802				0.18	%
Long-term debt		27,273				43				0.63	%		67,342				276				1.64	%		27,273				43				0.63	%		27,291				41				0.60	%
Short-term debt		—				—				0.00	%		13,077				28				0.86	%		—				—				0.00	%		—				—				0.00	%
PPPLF advance		—				—				0.00	%		87,332				76				0.35	%		—				—				0.00	%		—				—				0.00	%
Subordinated notes		19,473				251				5.16	%		—				—				0.00	%		19,473				251				5.16	%		19,490				251				5.15	%
Guaranteed preferred beneficial interest in junior subordinated debentures		12,000				75				2.50	%		12,000				97				3.23	%		12,000				75				2.50	%		12,000				75				2.50	%
Total debt		58,746				369				2.51	%		179,751				477				1.06	%		58,746				369				2.51	%		58,781				367				2.50	%
Interest-bearing liabilities		1,486,294				1,009				0.27	%		1,450,735				2,414				0.67	%		1,486,294				1,009				0.27	%		1,464,482				1,169				0.32	%
Total funds		1,892,460				1,009				0.21	%		1,783,377				2,414				0.54	%		1,892,460				1,009				0.21	%		1,845,541				1,169				0.25	%
Other liabilities		20,586											22,285											20,586											23,910
Stockholders' equity		203,893											189,890											203,893											201,124
Total Liabilities and Stockholders' Equity		$	2,116,939										$	1,995,552										$	2,116,939										$	2,070,575
Net interest income						$	16,435										$	15,224										$	16,435										$	16,509
Interest rate spread										3.30	%										3.21	%										3.30	%										3.43	%
Net yield on interest-earning assets										3.37	%										3.34	%										3.37	%										3.50	%
Average interest-earning assets to average interest-bearing liabilities										131.36	%										125.51	%										131.36	%										128.84	%
Average loans to average deposits										87.10	%										97.47	%										87.10	%										89.12	%
Average transaction deposits to total average deposits **										81.21	%										76.73	%										81.21	%										80.34	%
Cost of funds										0.21	%										0.54	%										0.21	%										0.25	%
Cost of deposits										0.14	%										0.48	%										0.14	%										0.18	%
Cost of debt										2.51	%										1.06	%										2.51	%										2.50	%

(1)   Loan average balance includes non-accrual loans. There are no tax equivalency adjustments. There was $75,000, $181,000 and $90,000 of accretion interest for the three months ended June 30, 2021 and 2020, and March 31, 2021, respectively.
____________________________________

** Transaction deposits exclude time deposits.

AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME (UNAUDITED)

		For the Six Months Ended June 30,
		2021											2020
(dollars in thousands)		Average Balance				Interest				Average Yield/Cost			Average Balance				Interest				Average Yield/Cost
Assets
Interest-earning assets:
Commercial real estate		$	1,074,874			$	21,648			4.03	%		$	968,112			$	21,782			4.50	%
Residential first mortgages		117,097				1,752				2.99	%		169,975				2,909				3.42	%
Residential rentals		139,150				2,855				4.10	%		131,469				2,874				4.37	%
Construction and land development		37,209				828				4.45	%		38,481				912				4.74	%
Home equity and second mortgages		29,166				499				3.42	%		35,582				771				4.33	%
Commercial and equipment loans		104,697				2,178				4.16	%		127,411				3,013				4.73	%
U.S. SBA PPP loans		110,183				3,120				5.66	%		46,516				493				2.12	%
Consumer loans		1,373				32				4.66	%		1,118				25				4.47	%
Allowance for loan losses		(18,936		)		—				—	%		(13,400		)		—				—	%
Loan portfolio (1)		$	1,594,813			$	32,912			4.13	%		$	1,505,264			$	32,779			4.36	%
Taxable investment securities		253,043				1,970				1.56	%		213,664				2,711				2.54	%
Nontaxable investment securities		18,185				195				2.14	%		6,337				99				3.12	%
Interest-bearing deposits in other banks		26,964				28				0.21	%		11,966				63				1.05	%
Federal funds sold		26,794				17				0.13	%		9,960				25				0.50	%
Total Interest-Earning Assets		1,919,799				35,122				3.66	%		1,747,191				35,677				4.08	%
Cash and cash equivalents		74,237											48,657
Goodwill		10,835											10,835
Core deposit intangible		1,415											1,986
Other assets		87,600											87,819
Total Assets		$	2,093,886										$	1,896,488
Liabilities and Stockholders' Equity
Noninterest-bearing demand deposits		393,682				—				—	%		289,473				—				—	%
Interest-bearing liabilities:
Savings		103,809				26				0.05	%		76,052				$	48			0.13	%
Interest-bearing demand and money market accounts		964,946				380				0.08	%		800,797				1,805				0.45	%
Certificates of deposit		347,930				1,036				0.60	%		381,828				3,128				1.64	%
Total Interest-bearing deposits		1,416,685				1,442				0.20	%		1,258,677				4,981				0.79	%
Total deposits		1,810,367				1,442				0.16	%		1,548,150				4,981				0.64	%
Debt:
Long-term debt		27,282				83				0.61	%		61,219				536				1.75	%
Short-term borrowings		—				—				—	%		14,805				97				1.31	%
PPPLF advances		—				—				—	%		43,666				76				0.35	%
Subordinated notes		19,482				503				5.16	%		7,456				184				4.94	%
Guaranteed preferred beneficial interest in junior subordinated debentures		12,000				150				2.50	%		12,000				226				3.77	%
Total debt		58,764				736				2.50	%		139,146				1,119				1.61	%
Total interest-bearing liabilities		1,475,449				2,178				0.30	%		1,397,823				6,100				0.87	%
Total funds		1,869,131				2,178				0.23	%		1,687,296				6,100				0.72	%
Other liabilities		22,239											22,612
Stockholders' equity		202,516											186,580
Total Liabilities and Stockholders' Equity		$	2,093,886										$	1,896,488
Net interest income						$	32,944										$	29,577
Interest rate spread										3.36	%										3.21	%
Net yield on interest-earning assets										3.43	%										3.39	%
Average interest-earning assets to average interest-bearing liabilities										130.12	%										124.99	%
Average loans to average deposits										88.09	%										97.23	%
Average transaction deposits to total average deposits **										80.78	%										75.34	%
Cost of funds										0.23	%										0.72	%
Cost of deposits										0.16	%										0.64	%
Cost of debt										2.50	%										1.61	%

(1)   Loan average balance includes non-accrual loans. There are no tax equivalency adjustments. There was $165,000 and $403,000 of accretion interest during the six months ended June 30, 2021 and 2020, respectively.
____________________________________

** Transaction deposits exclude time deposits.

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

BY LOAN TYPE		June 30, 2021				%				March 31, 2021				%				December 31, 2020				%				September 30, 2020				%				June 30, 2020				%
Portfolio Type:
Commercial real estate		$	1,111,613			72.47		%		$	1,081,111			71.74		%		$	1,049,147			69.75		%		$	1,021,987			68.29		%		$	996,111			66.73		%
Residential first mortgages		105,482				6.88		%		115,803				7.68		%		133,779				8.89		%		147,756				9.87		%		165,670				11.10		%
Residential rentals		142,210				9.27		%		137,522				9.12		%		139,059				9.24		%		137,950				9.22		%		132,590				8.88		%
Construction and land development		36,918				2.41		%		38,446				2.55		%		37,520				2.49		%		36,061				2.41		%		37,580				2.52		%
Home equity and second mortgages		28,726				1.87		%		29,363				1.95		%		29,129				1.94		%		31,427				2.10		%		33,873				2.27		%
Commercial loans		47,567				3.10		%		42,689				2.83		%		52,921				3.52		%		58,894				3.94		%		63,249				4.24		%
Consumer loans		1,442				0.09		%		1,415				0.09		%		1,027				0.07		%		1,081				0.07		%		1,117				0.07		%
Commercial equipment		59,918				3.91		%		60,834				4.04		%		61,693				4.10		%		61,376				4.10		%		62,555				4.19		%
Gross portfolio loans		1,533,876				100.00		%		1,507,183				100.00		%		1,504,275				100.00		%		1,496,532				100.00		%		1,492,745				100.00		%
Net deferred costs		533				0.03		%		879				0.06		%		1,264				0.08		%		1,610				0.11		%		2,072				0.14		%
Allowance for loan losses		(18,516		)		(1.21	)	%		(18,256		)		(1.21	)	%		(19,424		)		(1.29	)	%		(18,829		)		(1.26	)	%		(16,319		)		(1.09	)	%
		(17,983		)						(17,377		)						(18,160		)						(17,219		)						(14,247		)
Net portfolio loans		$	1,515,893							$	1,489,806							$	1,486,115							$	1,479,313							$	1,478,498
U.S. SBA PPP loans		$	89,129							$	115,700							$	110,320							$	131,088							$	129,384
Net deferred fees		(2,647		)						(3,215		)						(2,360		)						(3,277		)						(3,746		)
Net U.S. SBA PPP loans		$	86,482							$	112,485							$	107,960							$	127,811							$	125,638
Total net loans		$	1,602,375							$	1,602,291							$	1,594,075							$	1,607,124							$	1,604,136
Gross loans		$	1,623,005							$	1,622,883							$	1,614,595							$	1,627,620							$	1,622,129

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: 

		June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020			June 30, 2020
(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		3.96	%		4.02	%		4.11	%		4.20	%		4.32	%
Residential first mortgages		3.87	%		3.87	%		3.93	%		3.93	%		3.93	%
Residential rentals		4.11	%		4.20	%		4.26	%		4.30	%		4.45	%
Construction and land development		4.31	%		4.32	%		4.28	%		4.40	%		4.46	%
Home equity and second mortgages		3.50	%		3.52	%		3.54	%		3.56	%		3.56	%
Commercial loans		4.44	%		4.63	%		4.56	%		4.51	%		4.53	%
Consumer loans		5.65	%		5.75	%		5.99	%		5.94	%		6.05	%
Commercial equipment		4.42	%		4.40	%		4.42	%		4.42	%		4.44	%
U.S. SBA PPP loans		1.00	%		1.00	%		1.00	%		1.00	%		1.00	%
Total loans		3.84	%		3.84	%		3.92	%		3.94	%		4.03	%
Yields without U.S. SBA PPP loans		4.00	%		4.06	%		4.13	%		4.20	%		4.29	%

ALLOWANCE FOR LOAN LOSSES (UNAUDITED)

(dollars in thousands)		For the Three Months Ended
		June 30, 2021					March 31, 2021					December 31, 2020					September 30, 2020					June 30, 2020
Beginning of period		$	18,256				$	19,424				$	18,829				$	16,319				$	15,061
Charge-offs		(61		)			(1,485		)			(30		)			(65		)			(2,262		)
Recoveries		30					22					25					75					20
Net charge-offs		(31		)			(1,463		)			(5		)			10					(2,242		)
Provision for loan losses		291					295					600					2,500					3,500
End of period		$	18,516				$	18,256				$	19,424				$	18,829				$	16,319
Net charge-offs to average portfolio loans (annualized)(1)		(0.01		)	%		(0.40		)	%		—			%		—			%		(0.61		)	%
Breakdown of general and specific allowance as a percentage of gross portfolio loans(1)
General allowance		$	17,686				$	17,365				$	18,068				$	18,319				$	16,215
Specific allowance		778					891					1,356					510					104
Total allowance to non-acquired loans		$	18,464				$	18,256				$	19,424				$	18,829				$	16,319
PCI loans		52					—					—					—					—
Total allowance to gross portfolio loans with PCI loans		$	18,516				$	18,256				$	19,424				$	18,829				$	16,319
General allowance		1.15			%		1.15			%		1.20			%		1.22			%		1.09			%
Specific allowance		0.05			%		0.06			%		0.09			%		0.03			%		0.01			%
Total allowance to gross portfolio loans(1)		1.20			%		1.21			%		1.29			%		1.26			%		1.09			%
Total allowance to gross portfolio loans with PCI loans(2)		1.21			%		—			%		—			%		—			%		—			%
Allowance to non-acquired gross loans(3)		1.25			%		1.26			%		1.35			%		1.31			%		1.14			%
Allowance+ Non-PCI FV Mark		$	19,090				$	18,939				$	20,174				$	19,643				$	17,208
Allowance+ Non-PCI FV Mark to gross portfolio loans		1.24			%		1.26			%		1.34			%		1.31			%		1.15			%

____________________________________
(1) Portfolio loans include all loan portfolios except the U.S. SBA PPP loan portfolio
(2) There were no allowance for loan loss on the PCI portfolios prior to the three months ended June 30, 2021.
(3) Non-acquired loans include loans transferred from acquired pools following release of acquisition accounting FMV adjustments. Non-acquired loans exclude U.S. SBA PPP loans.

Below are several schedules that provide information on the COVID-19 deferred loans. The schedules summarize the COVID-19 loan modifications by loan portfolio, maturity or next payment due dates and the Banks's industry classification using the North American Industry Classification System ("NAICS"). The NAICS is the standard used by Federal statistical agencies in classifying business establishments for the purpose of collecting, analyzing, and publishing statistical data related to the U.S. business economy.

		(UNAUDITED)
COVID-19 Deferred Loans		June 30, 2021										Accrual Loans						Non-Accrual Loans
(dollars in thousands)		Loan Balances				% of Deferred Loans			% of Gross Portfolio Loans			Loan Balances				Number of Loans		Loan Balances				Number of Loans
Commercial equipment		3,505				100.00	%		0.23	%		3,505				11		—				—
Total		$	3,505			100.00	%		0.23	%		$	3,505			11		$	—			—

COVID-19 Deferred Loans - Scheduled Month off Deferral		(UNAUDITED)
(dollars in thousands)		Loan Balances				%			Number of Loans
December-21		3,505				100.00	%		11
Total		$	3,505			100.00	%		11

COVID-19 Deferred Loans by NAICS Industry		(UNAUDITED)
(dollars in thousands)		June 30, 2021				Number of Loans
Transportation and Warehousing		3,505				11
Total		$	3,505			11

CLASSIFIED AND SPECIAL MENTION ASSETS (UNAUDITED)

The following is a breakdown of the Company’s classified and special mention assets at June 30, 2021 and December 31, 2020, 2019, 2018, and 2017, respectively:

	As of
(dollars in thousands)		6/30/2021				3/31/2021				12/31/2020				12/31/2019				12/31/2018				12/31/2017
Classified loans
Substandard		$	13,382			$	13,816			$	19,249			$	26,863			$	32,226			$	40,306
Doubtful		—				—				—				—				—				—
Total classified loans		13,382				13,816				19,249				26,863				32,226				40,306
Special mention loans		4,524				7,769				7,672				—				—				96
Total classified and special mention loans		$	17,906			$	21,585			$	26,921			$	26,863			$	32,226			$	40,402
Classified loans		$	13,382			$	13,816			$	19,249			$	26,863			$	32,226			$	40,306
Classified securities		—				—				—				—				482				651
Other real estate owned		1,536				2,329				3,109				7,773				8,111				9,341
Total classified assets		$	14,918			$	16,145			$	22,358			$	34,636			$	40,819			$	50,298
Total classified assets as a percentage of total assets		0.68		%		0.75		%		1.10		%		1.93		%		2.42		%		3.58		%
Total classified assets as a percentage of Risk Based Capital		6.24		%		6.81		%		9.61		%		16.21		%		21.54		%		32.10		%

SUMMARY OF DEPOSITS (UNAUDITED)

		June 30, 2021							March 31, 2021							December 31, 2020							September 30, 2020							June 30, 2020
(dollars in thousands)		Balance				%			Balance				%			Balance				%			Balance				%			Balance				%
Noninterest-bearing demand		$	423,165			22.18	%		$	406,319			21.75	%		$	362,079			20.74	%		$	360,839			20.28	%		$	356,196			21.32	%
Interest-bearing:
Demand		685,023				35.90	%		651,639				34.89	%		590,159				33.81	%		635,176				35.69	%		547,639				32.79	%
Money market deposits		351,262				18.41	%		355,680				19.04	%		340,725				19.52	%		329,617				18.52	%		314,781				18.85	%
Savings		107,288				5.62	%		105,590				5.65	%		98,783				5.66	%		90,514				5.09	%		85,257				5.10	%
Certificates of deposit		341,400				17.89	%		348,668				18.67	%		353,856				20.27	%		363,460				20.42	%		366,491				21.94	%
Total interest-bearing		1,484,973				77.82	%		1,461,577				78.25	%		1,383,523				79.26	%		1,418,767				79.72	%		1,314,168				78.68	%
Total deposits		$	1,908,138			100.00	%		$	1,867,896			100.00	%		$	1,745,602			100.00	%		$	1,779,606			100.00	%		$	1,670,364			100.00	%
Transaction accounts		$	1,566,738			82.11	%		$	1,519,228			81.33	%		$	1,391,746			79.73	%		$	1,416,146			79.58	%		$	1,303,873			78.06	%

FAQ

What were the net income results for TCFC in Q2 2021?

TCFC reported a net income of $6.4 million for Q2 2021, up from $3.5 million in Q2 2020.

How did TCFC perform in terms of return on average assets and equity?

In Q2 2021, TCFC achieved a ROAA of 1.22% and a ROACE of 12.62%, both record highs.

What changes did TCFC make to its dividends in Q2 2021?

TCFC increased its dividends by 20% from $0.125 to $0.15 per share in Q2 2021.

What was the impact of net interest margin on TCFC's financial performance?

TCFC's net interest margin compressed to 3.37% due to a low-interest-rate environment.

What is the status of TCFC's share repurchase program?

During Q2 2021, TCFC repurchased 111,884 shares of common stock at an average price of $34.93 per share.