Company Quick10K Filing
Quick10K
Community Financial
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$30.27 6 $169
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-05-15 Shareholder Vote
8-K 2019-04-22 Earnings, Exhibits
8-K 2019-04-01 Officers, Exhibits
8-K 2019-02-04 Earnings, Exhibits
8-K 2018-12-20 Other Events, Exhibits
8-K 2018-11-07 Officers, Exhibits
8-K 2018-10-29 Earnings, Exhibits
8-K 2018-08-01 Regulation FD, Exhibits
8-K 2018-07-26 Earnings, Exhibits
8-K 2018-05-16 Shareholder Vote
8-K 2018-05-02 Earnings, Exhibits
8-K 2018-04-30 Officers
8-K 2018-03-28 Regulation FD, Exhibits
8-K 2018-01-29 Earnings, Exhibits
8-K 2018-01-01 M&A, Other Events, Exhibits
THO Thor Industries 3,420
NFC New Frontier 288
TBRG Thunder Bridge Acquisition 264
CIX Compx 186
EYPT Eyepoint Pharmaceuticals 172
NEWA Newater Technology 83
SAUC Diversified Restaurant Holdings 32
GBBT Global Boatworks Holdings 0
CCE Coca-Cola European Partners 0
INCT InCapta 0
TCFC 2019-03-31
Part 1 - Financial Information - Item 1 – Financial Statements
Note 1 – Basis of Presentation and Nature of Operations
Note 2 – Securities
Note 3 – Loans
Note 4 – Goodwill and Other Intangible Assets
Note 5 - Other Real Estate Owned (“Oreo”)
Note 6 – Deposits
Note 7 – Commitments & Contingences
Note 8 - Guaranteed Preferred Beneficial Interest in Junior Subordinated Debentures (“Trups”)
Note 9 – Subordinated Notes
Note 10 – Regulatory Capital
Note 11 - Fair Value Measurements
Note 12 - Fair Value of Financial Instruments
Note 13 - Accumulated Other Comprehensive Income (Loss)
Note 14 - Earnings per Share (“Eps”)
Note 15 – Income Taxes
Note 16 - Stock-Based Compensation
Item 2 - Management’S Discussion and Analysis (“MD&A”) of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds
Item 3 - Defaults Upon Senior Securities – None
Item 4 – Mine Safety Disclosures – Not Applicable
Item 5 - Other Information – None
Item 6 – Exhibits
EX-31 tcfc-20190331xex31.htm
EX-32 tcfc-20190331xex32.htm

Community Financial Earnings 2019-03-31

TCFC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 tcfc-20190331x10q.htm 10-Q tcfc_Current_Folio_10Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10‑Q

X     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2019

OR

     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission File Number 001‑36094

Picture 1

 

THE COMMUNITY FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

 

Maryland

52-1652138

(State of other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

 

 

 

 

3035 Leonardtown Road, Waldorf, Maryland

20601

(Address of principal executive offices)

(Zip Code)

 

(301) 645‑5601

(Registrant’s telephone number, including area code)

 

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  X         No      

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes  X        No      

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, and an emerging growth company. See definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b‑2 of the Exchange Act.

 

 

Large Accelerated Filer  ☐

Accelerated Filer   X

Non-accelerated Filer  ☐

Smaller Reporting Company   X

Emerging growth company   ☐  

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act).

Yes             No     

 

Securities registered pursuant to Section 12(b) of Act:

 

 

 

 

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

TCFC

The NASDAQ Stock Market LLC

 

As of May 3, 2019, the registrant had 5,582,438 shares of common stock outstanding. 

 

 

 

 


 

THE COMMUNITY FINANCIAL CORPORATION

FORM 10‑Q

INDEX

 

 

 

 

Page

PART I - FINANCIAL INFORMATION 

 

 

 

Item 1 – Financial Statements (Unaudited) 

 

 

 

Consolidated Balance Sheets – March 31, 2019 and December 31, 2018 

1

 

 

Consolidated Statements of Income - Three Months Ended March 31, 2019 and 2018 

2

 

 

Consolidated Statements of Comprehensive Income - Three Months Ended March 31, 2019 and 2018 

3

 

 

Consolidated Statements of Changes in Stockholders’ Equity - Three Months Ended March 31, 2019 and 2018 

4

 

 

Consolidated Statements of Cash Flows - Three Months Ended March 31, 2019 and 2018 

5

 

 

Notes to Consolidated Financial Statements 

7

 

 

Item 2 – Management’s Discussion and Analysis (“MD&A”) of Financial Condition and Results of Operations 

39

 

 

Item 3 – Quantitative and Qualitative Disclosures about Market Risk 

66

 

 

Item 4 – Controls and Procedures 

67

 

 

PART II - OTHER INFORMATION 

 

 

 

Item 1 –    Legal Proceedings 

68

 

 

Item 1A – Risk Factors 

68

 

 

Item 2 –    Unregistered Sales of Equity Securities and Use of Proceeds 

68

 

 

Item 3 –    Defaults Upon Senior Securities 

68

 

 

Item 4 –    Mine Safety Disclosures 

68

 

 

Item 5 –    Other Information 

68

 

 

Item 6 –    Exhibits 

69

 

 

SIGNATURES 

70

 

 

 

 

 


 

PART 1 - FINANCIAL INFORMATION - ITEM 1 – FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

 

(Unaudited)

 

 

(dollars in thousands, except per share amounts)

    

March 31, 2019

    

December 31, 2018

Assets

 

 

  

 

 

  

Cash and due from banks

 

$

16,711

 

$

24,064

Federal funds sold

 

 

 —

 

 

5,700

Interest-bearing deposits with banks

 

 

2,997

 

 

3,272

Securities available for sale (AFS), at fair value

 

 

128,400

 

 

119,976

Securities held to maturity (HTM), at amortized cost

 

 

95,495

 

 

96,271

Equity securities carried at fair value through income

 

 

4,511

 

 

4,428

Non-marketable equity securities held in other financial institutions

 

 

209

 

 

209

Federal Home Loan Bank (FHLB) stock - at cost

 

 

3,874

 

 

3,821

Loans receivable

 

 

1,364,437

 

 

1,348,105

Less: allowance for loan losses

 

 

(10,846)

 

 

(10,976)

Net loans

 

 

1,353,591

 

 

1,337,129

Goodwill

 

 

10,835

 

 

10,835

Premises and equipment, net

 

 

22,922

 

 

22,922

Other real estate owned (OREO)

 

 

10,949

 

 

8,111

Accrued interest receivable

 

 

5,331

 

 

4,957

Investment in bank owned life insurance

 

 

36,513

 

 

36,295

Core deposit intangible

 

 

2,625

 

 

2,806

Net deferred tax assets

 

 

6,232

 

 

6,693

Right of use assets - operating leases

 

 

10,044

 

 

 —

Other assets

 

 

708

 

 

1,738

Total Assets

 

$

1,711,947

 

$

1,689,227

Liabilities and Stockholders’ Equity

 

 

  

 

 

  

Deposits

 

 

  

 

 

  

Non-interest-bearing deposits

 

$

214,432

 

$

209,378

Interest-bearing deposits

 

 

1,224,735

 

 

1,220,251

Total deposits

 

 

1,439,167

 

 

1,429,629

Short-term borrowings

 

 

35,000

 

 

35,000

Long-term debt

 

 

20,419

 

 

20,436

Guaranteed preferred beneficial interest in junior subordinated debentures (TRUPs)

 

 

12,000

 

 

12,000

Subordinated notes - 6.25%

 

 

23,000

 

 

23,000

Lease liabilities - operating leases

 

 

10,080

 

 

 —

Accrued expenses and other liabilities

 

 

13,201

 

 

14,680

Total Liabilities

 

 

1,552,867

 

 

1,534,745

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

  

 

 

  

Common stock - par value $.01; authorized - 15,000,000 shares; issued 5,581,521 and 5,577,559 shares, respectively

 

 

56

 

 

56

Additional paid in capital

 

 

84,497

 

 

84,397

Retained earnings

 

 

75,757

 

 

72,594

Accumulated other comprehensive loss

 

 

(473)

 

 

(1,847)

Unearned ESOP shares

 

 

(757)

 

 

(718)

Total Stockholders’ Equity

 

 

159,080

 

 

154,482

Total Liabilities and Stockholders’ Equity

 

$

1,711,947

 

$

1,689,227

 

See notes to Consolidated Financial Statements

1


 

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

(dollars in thousands, except per share amounts)

    

2019

    

2018

    

Interest and Dividend Income

 

 

  

 

 

  

 

Loans, including fees

 

$

16,129

 

$

14,726

 

Interest and dividends on investment securities

 

 

1,623

 

 

1,095

 

Interest on deposits with banks

 

 

45

 

 

72

 

Total Interest and Dividend Income

 

 

17,797

 

 

15,893

 

Interest Expense

 

 

  

 

 

  

 

Deposits

 

 

3,768

 

 

1,956

 

Short-term borrowings

 

 

334

 

 

283

 

Long-term debt

 

 

658

 

 

764

 

Total Interest Expense

 

 

4,760

 

 

3,003

 

Net Interest Income

 

 

13,037

 

 

12,890

 

Provision for loan losses

 

 

500

 

 

500

 

Net Interest Income After Provision For Loan Losses

 

 

12,537

 

 

12,390

 

Noninterest Income

 

 

  

 

 

  

 

Loan appraisal, credit, and miscellaneous charges

 

 

58

 

 

53

 

Unrealized gain on equity securities

 

 

56

 

 

 —

 

Income from bank owned life insurance

 

 

217

 

 

226

 

Service charges

 

 

730

 

 

752

 

Total Noninterest Income

 

 

1,061

 

 

1,031

 

Noninterest Expense

 

 

  

 

 

  

 

Salary and employee benefits

 

 

4,803

 

 

5,047

 

Occupancy expense

 

 

806

 

 

766

 

Advertising

 

 

197

 

 

159

 

Data processing expense

 

 

720

 

 

683

 

Professional fees

 

 

418

 

 

352

 

Merger and acquisition costs

 

 

 —

 

 

2,868

 

Depreciation of premises and equipment

 

 

189

 

 

199

 

Telephone communications

 

 

52

 

 

99

 

Office supplies

 

 

37

 

 

40

 

FDIC Insurance

 

 

175

 

 

198

 

OREO valuation allowance and expenses

 

 

56

 

 

114

 

Core deposit intangible amortization

 

 

181

 

 

205

 

Other

 

 

771

 

 

937

 

Total Noninterest Expense

 

 

8,405

 

 

11,667

 

Income before income taxes

 

 

5,193

 

 

1,754

 

Income tax expense

 

 

1,316

 

 

533

 

Net Income

 

$

3,877

 

$

1,221

 

Earnings Per Common Share

 

 

  

 

 

  

 

Basic

 

$

0.70

 

$

0.22

 

Diluted

 

$

0.70

 

$

0.22

 

Cash dividends paid per common share

 

$

0.125

 

$

0.10

 

 

See notes to Consolidated Financial Statements

2


 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

(dollars in thousands)

    

2019

    

2018

    

 

 

 

 

 

 

 

 

Net Income

 

$

3,877

 

$

1,221

 

Net unrealized holding gains (losses) arising during period, net of tax expense (benefit) of $522 and $(269), respectively.

 

 

1,374

 

 

(707)

 

Comprehensive Income

 

$

5,251

 

$

514

 

 

See notes to Consolidated Financial Statements

3


 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)

For the Three Months Ended March 31, 2019 and 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

Other

 

Unearned

 

 

 

 

 

Common

 

Paid-in

 

Retained

 

Comprehensive

 

ESOP

 

 

 

(dollars in thousands)

    

Stock

    

Capital

    

Earnings

    

Income (Loss)

    

Shares

    

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2019

 

$

56

 

$

84,397

 

$

72,594

 

$

(1,847)

 

$

(718)

 

$

154,482

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

 —

 

 

 —

 

 

3,877

 

 

 —

 

 

 —

 

 

3,877

Unrealized holding gain on investment securities net of tax expense $522

 

 

 —

 

 

 —

 

 

 —

 

 

1,374

 

 

 —

 

 

1,374

Cash dividend at $0.125 per common share

 

 

 —

 

 

 —

 

 

(671)

 

 

 —

 

 

 —

 

 

(671)

Dividend reinvestment

 

 

 —

 

 

26

 

 

(26)

 

 

 —

 

 

 —

 

 

 —

Net change in fair market value below cost of leveraged ESOP shares released

 

 

 —

 

 

(3)

 

 

 —

 

 

 —

 

 

 —

 

 

(3)

Net change in unearned ESOP shares

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(39)

 

 

(39)

Repurchase of common stock

 

 

 —

 

 

 —

 

 

(17)

 

 

 —

 

 

 —

 

 

(17)

Stock based compensation

 

 

 —

 

 

77

 

 

 —

 

 

 —

 

 

 —

 

 

77

Balance at March 31, 2019

 

$

56

 

$

84,497

 

$

75,757

 

$

(473)

 

$

(757)

 

$

159,080

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

    

 

    

    

 

    

    

 

    

Accumulated

    

    

 

    

    

 

 

 

 

 

 

Additional

 

 

 

 

Other

 

Unearned

 

 

 

 

 

Common

 

Paid-in

 

Retained

 

Comprehensive

 

ESOP

 

 

 

(dollars in thousands)

 

Stock

 

Capital

 

Earnings

 

Income (Loss)

 

Shares

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2018

 

$

46

 

$

48,209

 

$

63,648

 

$

(1,191)

 

$

(755)

 

$

109,957

Net Income

 

 

 —

 

 

 —

 

 

1,221

 

 

 —

 

 

 —

 

 

1,221

Unrealized holding loss on investment securities net of tax benefit of $269

 

 

 —

 

 

 —

 

 

 —

 

 

(707)

 

 

 —

 

 

(707)

Cash dividend at $0.10 per common share

 

 

 —

 

 

 —

 

 

(543)

 

 

 —

 

 

 —

 

 

(543)

Net change in fair market value over cost of leveraged ESOP shares released

 

 

 —

 

 

 9

 

 

 —

 

 

 —

 

 

 —

 

 

 9

Dividend reinvestment

 

 

 —

 

 

16

 

 

(16)

 

 

 —

 

 

 —

 

 

 —

Shares issued for County First Merger

 

 

10

 

 

35,608

 

 

 —

 

 

 —

 

 

 —

 

 

35,618

Repurchase of common stock

 

 

 —

 

 

 —

 

 

(3)

 

 

 —

 

 

 —

 

 

(3)

Stock based compensation

 

 

 —

 

 

105

 

 

 —

 

 

 —

 

 

 —

 

 

105

Balance at March 31, 2018

 

$

56

 

$

83,947

 

$

64,307

 

$

(1,898)

 

$

(755)

 

$

145,657

 

See notes to Consolidated Financial Statements 

 

4


 

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

(dollars in thousands)

    

2019

    

2018

    

 

 

 

 

 

 

 

 

Cash Flows from Operating Activities

 

 

  

 

 

  

 

Net income

 

$

3,877

 

$

1,221

 

Adjustments to reconcile net income to net cash provided by operating activities

 

 

  

 

 

  

 

Provision for loan losses

 

 

500

 

 

500

 

Depreciation and amortization

 

 

415

 

 

414

 

Net (gains) on the sale of OREO

 

 

(10)

 

 

 —

 

Unrealized gains on equity securities

 

 

(56)

 

 

 —

 

Net amortization of premium/discount on investment securities

 

 

(44)

 

 

91

 

Net accretion of merger accounting adjustments

 

 

(168)

 

 

(323)

 

Amortization of core deposit intangible

 

 

181

 

 

205

 

Net change in right of use assets and lease liabilities

 

 

37

 

 

 —

 

Increase in OREO valuation allowance

 

 

61

 

 

90

 

Increase in cash surrender value of bank owned life insurance

 

 

(218)

 

 

(221)

 

Deferred income tax benefit

 

 

(61)

 

 

(50)

 

(Increase) decrease in accrued interest receivable

 

 

(374)

 

 

187

 

Stock based compensation

 

 

76

 

 

105

 

Net change due to (deficit) excess of fair market value over cost of leveraged ESOP shares released

 

 

(3)

 

 

 9

 

Increase in net deferred loan costs

 

 

(78)

 

 

(32)

 

(Decrease) increase in accrued expenses and other liabilities

 

 

(1,479)

 

 

99

 

Decrease in other assets

 

 

1,028

 

 

2,566

 

Net Cash Provided by Operating Activities

 

 

3,684

 

 

4,861

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities

 

 

  

 

 

  

 

Purchase of AFS investment securities

 

 

(9,602)

 

 

(5,532)

 

Proceeds from redemption or principal payments of AFS investment securities

 

 

3,124

 

 

1,907

 

Purchase of HTM investment securities

 

 

(3,239)

 

 

(982)

 

Proceeds from maturities or principal payments of HTM investment securities

 

 

3,982

 

 

5,053

 

Proceeds from sale of AFS investment securities

 

 

 —

 

 

34,919

 

Net (Increase) decrease of FHLB and FRB stock

 

 

(52)

 

 

1,893

 

Loans originated or acquired

 

 

(104,723)

 

 

(67,772)

 

Principal collected on loans

 

 

85,072

 

 

78,582

 

Purchase of premises and equipment

 

 

(415)

 

 

(86)

 

Proceeds from sale of OREO

 

 

46

 

 

 —

 

Net cash acquired in business combination

 

 

 —

 

 

32,287

 

Net Cash (Used in) Provided by Investing Activities

 

 

(25,807)

 

 

80,269

 

 

5


 

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(continued)

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

(dollars in thousands)

    

2019

    

2018

    

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities

 

 

  

 

 

  

 

Net increase (decrease) in deposits

 

$

9,539

 

$

(19,530)

 

Payments of long-term debt

 

 

(17)

 

 

(10,016)

 

Net decrease in short term borrowings

 

 

 —

 

 

(36,000)

 

Dividends paid

 

 

(671)

 

 

(543)

 

Net change in unearned ESOP shares

 

 

(39)

 

 

 —

 

Repurchase of common stock

 

 

(17)

 

 

(3)

 

Net Cash Provided by (Used in) Financing Activities

 

 

8,795

 

 

(66,092)

 

(Decrease) Increase in Cash and Cash Equivalents

 

$

(13,328)

 

$

19,038

 

 

 

 

 

 

 

 

 

Cash and Cash Equivalents - January 1

 

 

33,036

 

 

15,417

 

Cash and Cash Equivalents - March 31

 

$

19,708

 

$

34,455

 

 

 

 

 

 

 

 

 

Supplemental Disclosures of Cash Flow Information

 

 

  

 

 

  

 

Cash paid during the period for

 

 

  

 

 

  

 

Interest

 

$

5,056

 

$

3,403

 

Income taxes

 

$

 —

 

$

 —

 

 

 

 

 

 

 

 

 

Supplemental Schedule of Non-Cash Operating Activities

 

 

  

 

 

  

 

Issuance of common stock for payment of compensation

 

$

107

 

$

247

 

Transfer from loans to OREO

 

$

3,215

 

$

101

 

Financed amount of sale of OREO

 

$

280

 

$

 —

 

 

 

 

 

 

 

 

 

Business Combination Non-Cash Disclosures

 

 

  

 

 

  

 

Assets acquired in business combination (net of cash received)

 

$

 —

 

$

193,836

 

Liabilities assumed in business combination

 

$

 —

 

$

200,780

 

 

See notes to Consolidated Financial Statements

 

 

6


 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1 – BASIS OF PRESENTATION AND NATURE OF OPERATIONS

Basis of Presentation

The consolidated financial statements of The Community Financial Corporation (the “Company”) and its wholly owned subsidiary, Community Bank of the Chesapeake (the “Bank”), and the Bank’s wholly owned subsidiary, Community Mortgage Corporation of Tri-County, included herein are unaudited.

The consolidated financial statements reflect all adjustments consisting only of normal recurring accruals that, in the opinion of management, are necessary to present fairly the Company’s financial condition, results of operations, and cash flows for the periods presented. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The Company believes that the disclosures are adequate to make the information presented not misleading. The balances as of December 31, 2018 have been derived from audited financial statements. Additions to the Company’s accounting policies are disclosed in the 2018 Annual Report as well as the adoption of new accounting standards included in Note 1. The results of operations for the three months March 31, 2019 are not necessarily indicative of the results of operations to be expected for the remainder of the year or any other period.

These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s 2018 Annual Report on Form 10‑K.

Nature of Operations

The Company provides financial services to individuals and businesses through its offices in Southern Maryland and Annapolis and Fredericksburg, Virginia. Its primary deposit products are demand, savings and time deposits, and its primary lending products are commercial and residential mortgage loans, commercial loans, construction and land development loans, home equity and second mortgages and commercial equipment loans.

The Bank is headquartered in Southern Maryland with 12 branches located in Maryland and Virginia including Waldorf (two branches), Bryans Road, Dunkirk, Leonardtown, La Plata (two branches), Charlotte Hall, Prince Frederick, Lusby, California, Maryland; and Fredericksburg, Virginia.  The Bank has two operation centers located at the main office in Waldorf, Maryland and in Fredericksburg, Virginia.  The Company maintains five loan production offices (“LPOs”) in Annapolis, La Plata, Prince Frederick and Leonardtown, Maryland; and Fredericksburg, Virginia. The Leonardtown LPO is co-located with the branch and the Fredericksburg LPO is co-located with the operation center.

Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amount of income and expenses during the reporting periods. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, real estate acquired in the settlement of loans, fair value of financial instruments, fair value of assets acquired, and liabilities assumed in a business combination, evaluating other-than-temporary-impairment of investment securities and valuation of deferred tax assets.

Subsequent Events

Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued. Recognized subsequent events are events or transactions that provide additional evidence about conditions that

7


 

existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements. Non-recognized subsequent events are events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after that date. Management evaluated events and transactions since the balance sheet date and determined that no subsequent events occurred that require accrual or disclosure.

New Accounting Policy

See Note 1 – Summary of Significant Accounting Policies included in the Company’s 2018 Annual Report on Form 10‑K for a list of policies in effect as of December 31, 2018. The below summary is intended to provide updates or new policies required as a result of a new accounting standard or a change to the Company’s operations or assets that require a new or amended policy.

Commitments and Contingencies

The Company leases certain properties and land under operating leases. For leases in effect upon adoption of Accounting Standards Update 2016-02, “Leases (Topic 842)” at January 1, 2019 and for any leases commencing thereafter, the Company recognizes a liability to make lease payments, the “lease liability”, and an asset representing the right to use the underlying asset during the lease term, the “right-of-use asset”. The lease liability is measured at the present value of the remaining lease payments, discounted at the Company's incremental borrowing rate. The right-of-use asset is measured at the amount of the lease liability adjusted for the remaining balance of any lease incentives received, any cumulative prepaid or accrued rent if the lease payments are uneven throughout the lease term, any unamortized initial direct costs, and any impairment of the right-of-use-asset. Operating lease expense consists of a single lease cost calculated so that the remaining cost of the lease is allocated over the remaining lease term on a straight-line basis.

Certain of the Company's leases contain options to renew the lease. Most of these renewal options were included in the calculation of the lease liabilities because they are reasonably certain to be exercised. The Company's leases do not contain residual value guarantees or material variable lease payments. The Company does not have any material restrictions or covenants imposed by leases that would impact the Company's ability to pay dividends or cause the Company to incur additional financial obligations.

Recent Accounting Pronouncements

Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”)

ASU 2016‑02 - Leases (Topic 842). In February 2016, the FASB amended existing guidance that requires lessees to recognize the following for all leases (with the exception of short-term leases) at the commencement date (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Leases will be classified as either finance or operating with classification affecting the pattern of expense recognition in the income statement. Under the new guidance, lessor accounting is largely unchanged.

ASU 2016-02 was effective for the Company on January 1, 2019 and initially required transition using a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. In July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842) – Targeted Improvements,” which, among other things, provides an additional transition method that would allow entities not to apply the guidance in ASU 2016-02 in the comparative periods presented in the financial statements and instead to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. In December 2018, the FASB also issued ASU 2018-20, “Leases (Topic 842) - Narrow-Scope Improvements for Lessors,” which provides for certain policy elections and changes lessor accounting for sales taxes and similar taxes as well as certain lessor costs.

Upon adoption of ASU 2016-02, ASU 2018-11 and ASU 2018-20 on January 1, 2019, the Company recognized right-of-use assets and related lease liabilities of $10.2 million and $10.2 million, respectively. We elected to apply certain practical expedients provided under ASU 2016-02 whereby management did not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for

8


 

any existing leases. In addition, the recognition requirements of ASU 2016-02 were not applied to any short-term leases (as defined by related accounting guidance). Lease and non-lease components were accounted for separately because such amounts are readily determinable under our lease contracts. The Company utilized the modified-retrospective transition approach prescribed by ASU 2018-11.  See Note 7 – Commitments & Contingencies for additional disclosures related to leases.

ASU 2016‑13 - Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments. ASU No. 2016‑13 significantly changes how entities will measure credit losses for most financial assets and certain other instruments that aren’t measured at fair value through net income. The standard will replace today’s “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, will apply to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments, and financial guarantees. The CECL model does not apply to available-for-sale (“AFS”) debt securities. For AFS debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the credit losses will be recognized as allowances rather than reductions in the amortized cost of the securities.  As a result, entities will recognize improvements to estimated credit losses immediately in earnings rather than as interest income over time, as they do today. The ASU also simplifies the accounting model for purchase credit impaired (“PCI”) debt securities and loans. ASU 2016‑13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses (“ALLL”). In addition, entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach).

The Company has formed a CECL committee with representation from various departments. The committee has selected a third-party vendor solution to assist in the application of the ASU 2016-13. The committee is currently working through the implementation plan which includes assessment and documentation of processes, internal controls and data sources; model development and documentation; and system configuration, among other things. The adoption of the ASU 2016-13 could result in an increase or decrease in the allowance for loan losses as a result of changing from an “incurred loss” model to an “expected loss” model. Furthermore, ASU 2016-13 will necessitate establishment of an allowance for expected credit losses for certain debt securities and other financial assets. While management is currently unable to reasonably estimate the impact of adopting ASU 2016-13, the impact of adoption will be significantly influenced by the composition, characteristics, and quality of the loan and securities portfolios as well as the prevailing economic conditions and forecasts as of the adoption date. The committee is continuing to evaluate the provisions of ASU 2016-13 to determine the potential impact the new standard will have on the company’s consolidated financial statements.

ASU 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019, early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. This new standard will be effective for the Company beginning January 1, 2020. Management expects to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective.

ASU 2017‑04, Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment. ASU 2017‑04 eliminates Step 2 from the goodwill impairment test which required entities to compute the implied fair value of goodwill. Under ASU 2017‑04, an entity should perform an annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. ASU 2017‑04 will be effective for us on January 1, 2020, with earlier adoption permitted and is not expected to have a significant impact on the Company’s financial statements.

ASU 2018‑11,  Leases - Targeted Improvements. This ASU provide entities with relief from the costs of implementing certain aspects of the new leasing standard, ASU No. 2016‑02. Specifically, under the amendments in ASU 2018‑11: (1) entities may elect not to recast the comparative periods presented when transitioning to the new leasing standard, and (2) lessors may elect not to separate lease and non-lease components when certain conditions are met. The amendments have the same effective date as ASU 2016‑02 (January 1, 2019 for the Company). The Company adopted ASU 2018-11

9


 

on its required effective date of January 1, 2019 and elected both transition options mentioned above. ASU 2018‑11 did not have a material impact on the Company’s consolidated financial statements.

ASU 2018‑13,  Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. In August 2018, the FASB issued ASU No. 2018‑13. This ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements. Among the changes, entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy but will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. ASU No. 2018‑13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted. Entities are also allowed to early adopt any eliminated or modified disclosure requirements and delay adoption of the new disclosure requirements until their effective date. As ASU No. 2018‑13 only revises disclosure requirements, it will not have a material impact on the Company’s consolidated financial statements.

 

NOTE 2 – SECURITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2019

 

    

 

 

    

Gross

    

Gross

    

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Estimated

(dollars in thousands)

 

Cost

 

Gains

 

Losses

 

Fair Value

Securities available for sale (AFS)

 

 

  

 

 

  

 

 

  

 

 

  

Asset-backed securities issued by GSEs and U.S. Agencies

 

 

  

 

 

  

 

 

  

 

 

  

Residential Mortgage Backed Securities ("MBS")

 

$

12,343

 

$

27

 

$

126

 

$

12,244

Residential Collateralized Mortgage Obligations ("CMOs")

 

 

104,772

 

 

754

 

 

1,014

 

 

104,512

U.S. Agency

 

 

11,938

 

 

19

 

 

313

 

 

11,644

Total securities available for sale

 

$

129,053

 

$

800

 

$

1,453

 

$

128,400

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities held to maturity (HTM)

 

 

  

 

 

  

 

 

  

 

 

  

Asset-backed securities issued by GSEs and U.S. Agencies

 

 

  

 

 

  

 

 

  

 

 

  

Residential MBS

 

$

25,191

 

$

124

 

$

192

 

$

25,123

Residential CMOs

 

 

52,074

 

 

188

 

 

842

 

 

51,420

U.S. Agency

 

 

10,319

 

 

31

 

 

188

 

 

10,162

Asset-backed securities issued by Others:

 

 

 

 

 

  

 

 

  

 

 

 

Residential CMOs

 

 

465

 

 

 —

 

 

19

 

 

446

 

 

 

 

 

 

 

 

 

 

 

 

 

Callable GSE Agency Bonds

 

 

5,007

 

 

 —

 

 

31

 

 

4,976

Certificates of Deposit Fixed

 

 

950

 

 

 —

 

 

 —

 

 

950

U.S. government obligations

 

 

1,489

 

 

 —

 

 

 1

 

 

1,488

Total securities held to maturity

 

$

95,495

 

$

343

 

$

1,273

 

$

94,565

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity securities carried at fair value through income

 

 

  

 

 

  

 

 

  

 

 

  

CRA investment fund

 

$

4,511

 

$

 —

 

$

 —

 

$

4,511

Non-marketable equity securities

 

 

  

 

 

  

 

 

  

 

 

  

Other equity securities

 

$

209

 

$

 —

 

$

 —

 

$

209

 

10