Third Quarter 2020 Highlights

• Net income totaled $3.8 million for the quarter ended September 30, 2020, or $0.64 per diluted common share compared to net income of $3.7 million or $0.66 per diluted common share for the quarter ended September 30, 2019.
• A $2.5 million provision for loan losses was recorded during the quarter ended September 30, 2020, primarily due to economic uncertainties from the COVID-19 pandemic, bringing the year to date provision to $10.1 million.
• Efficiency ratio was 55.5% and 56.0% for the third quarter and nine months ended September 30, 2020 compared to 62.5% and 61.7% for the same periods in 2019.
• The Company’s return on average assets  ("ROAA") and return on average common equity ("ROACE") were 0.73% and 7.86% for the three months ended September 30, 2020 compared to 0.84% and 8.86% for the three months ended September 30, 2019. The Company’s ROAA and ROACE were 0.68% and 7.06% for the nine months ended September 30, 2020 compared to 0.87% and 9.22% for the nine months ended September 30, 2019.
• Pre-tax, pre-provision ("PTPP") ROAA and PTPP ROACE increased to 1.46% and 15.7% for the quarter ended September 30, 2020 compared to 1.26% and 13.3% for the quarter ended September 30, 2019.
• PTPP ROA and ROACE were 1.53% and 15.9% during the first nine months of 2020 compared to 1.29% and 13.7% for the same period in 2019.
• Subordinated debt of $20.0 million issued on October 14, 2020.

WALDORF, Md., Nov. 02, 2020 (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 third quarter and nine months ended September 30, 2020. Net income for the three months ended September 30, 2020 was $3.8 million, or $0.64 per diluted common share compared with net income of $3.5 million, or $0.59 per diluted common share for the second quarter of 2020, and net income of $3.7 million or $0.66 per diluted common share for the quarter ended September 30, 2019. The Company reported net income for the nine months ended September 30, 2020 of $10.0 million, or $1.70 per diluted common share compared to a net income for the comparable period of 2019 of $11.2 million, or $2.01 per diluted common share. As a result of the COVID-19 pandemic, third quarter and year to date 2020 earnings were impacted by increased provisions for loan losses ("PLL") of $2.5 million and $10.1 million, respectively, compared to $450,000 and $1.3 million for the three and nine months ended September 30, 2019.

"As we continue to work with our customers during the pandemic, I am proud of our team's focus and commitment to each other and our communities, which has resulted in an increase in core earnings. We completed the third quarter of 2020 with net income of $3.8 million, which included a $2.5 million provision for loan losses," stated William J. Pasenelli, President and Chief Executive Officer. "The Company's pre-tax pre-provision ("PTPP") income improved to $22.5 million, a $5.8 million or 35.1% increase over the first nine months of 2019. This has resulted in PTPP ROAA and ROACE improving to 1.53% and 15.9% during the first nine months of 2020."

"We are expecting the COVID-19 deferred portfolio to decrease from $251.5 million or 16.8% of loans at September 30, 2020 to between 2% and 4% by December 31, 2020," stated James M. Burke, Executive Vice President and Bank President. "Deferral customers are returning to normal payments as scheduled with very few exceptions. At this time, additional deferrals have only been granted to those clients in industries that have been the most negatively impacted by the pandemic. The continued improvement has been driven by the resilience of our local economy which is inextricably tied to federal government spending. Our ongoing commitment to our communities will continue by providing access to existing and future federal and state relief programs."

Balance Sheet - Asset Quality

COVID-19 Loan Programs

The outbreak of COVID-19 has adversely impacted a range of industries in the Company's footprint. The length and the severity of the pandemic could prevent our customers from fulfilling their financial obligations to the Company. The Coronavirus Aid, Relief and Economic Security ("CARES") Act was signed into law on March 27, 2020 as a $2 trillion legislative package. The goal of the CARES Act is to prevent a severe economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors. There have been additional clarifications to regulation and legislation since the original law was passed. The Company has taken significant steps to protect the health and well-being of its employees and customers and to assist customers who have been impacted by the COVID-19 pandemic.

We have originated U.S. Small Business Administration ("SBA") Paycheck Protection Program ("PPP") loans for our customers. As of September 30, 2020, the Company had originated 963 SBA PPP loans with balances of $131.1 million. We are ready to assist our customers if an additional round of funding is authorized by the President of the United States ("POTUS") and Congress. No credit issues are anticipated with 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.

We have payment deferral programs for our customers who are adversely affected by the pandemic. Beginning in April of 2020, the Company deferred either the full loan payment or the principal component of the loan payment between 90 and 180 days with most deferrals set to a six month period. As of September 30, 2020, $251.5 million or 16.8% of gross portfolio loans   had deferral agreements, down $13.4 million from $264.9 million or 17.7% of total gross portfolio loans as of June 30, 2020. These loans were current prior to the COVID-19 crisis and will not be considered delinquent loans or troubled debt restructures ("TDRs") upon completion of the modification agreements. Additionally, none of the deferrals are reflected in the Company’s asset quality measures (i.e., non-performing loans) due to the provision of the CARES Act that permits U.S. financial institutions to temporarily suspend the U.S. GAAP requirements to treat such short-term loan modifications as TDRs.

We expect the COVID-19 pandemic to have an adverse effect on our loan production and the credit quality of our loan portfolio during the remainder of 2020. Disruption to our customers could result in increased loan delinquencies and defaults and a decline in local loan demand. The Company's COVID-19 loan deferral commercial and retail programs could delay the identification and resolution of problem credits. Management believes impaired loans may increase in the future as a result of the COVID-19 pandemic.

The Bank's borrowers in the hotel, restaurant and retail industries continue to endure economic distress, which may cause them to draw on their existing lines of credit. This scenario may adversely affect their ability to repay existing indebtedness and may impact the value of collateral. These developments, together with economic conditions, could materially impact our commercial real estate portfolio, particularly with respect to real estate with exposure to specific industries, and the value of certain collateral securing our loans. As a result, our financial condition, capital levels and results of operations could be adversely affected.

Below are schedules that provide information on the COVID-19 deferred loans. The schedules summarize the COVID-19 loan modifications by loan portfolio, the amount of interest recognized but not received, monthly interest and principal deferral amounts, maturity or next payment due dates and the Bank's industry classification using the North American Industry Classification System ("NAICS").

COVID-19 Deferred Loans		September 30, 2020
(dollars in thousands)		Loan Balances				% of Deferred Loans			% of Gross Portfolio Loans			Number of Loans		Interest Recognized Not Received				Scheduled Monthly Principal				Scheduled Monthly Interest
Commercial real estate		$	224,275			89.19	%		14.98	%		134		$	4,015			$	546			$	806
Residential first mortgages		12,665				5.04	%		0.85	%		36		275				33				43
Residential rentals		7,598				3.02	%		0.51	%		27		196				31				34
Commercial loans		336				0.13	%		0.02	%		3		7				—				1
Consumer loans		1				—	%		—	%		1		—				—				—
Commercial equipment		6,600				2.62	%		0.44	%		49		89				115				24
Total		$	251,475			100.00	%		16.80	%		250		$	4,582			$	725			$	908

COVID-19 Deferred Loans - Next Payment Due by Month
(dollars in thousands)		Loan Balances				%			Number of Loans
October-20		$	96,917			38.54	%		109
November-20		121,588				48.35	%		108
December-20		30,158				11.99	%		27
January-21		2,812				1.12	%		6
Total		$	251,475			100.00	%		250

COVID-19 Deferred Loans by NAICS Industry
(dollars in thousands)		September 30, 2020				Number of Loans
Real Estate Rental and Leasing		$	114,542			88
Accommodation and Food Services		43,281				18
Other Services (except Public Administration)		40,974				25
Health Care and Social Assistance		11,273				11
Professional, Scientific, and Technical Services		7,337				11
Construction		5,863				12
Arts, Entertainment, and Recreation		3,984				3
Transportation and Warehousing		4,285				15
Retail Trade		1,488				8
Educational Services		1,765				5
Other Industries, Residential Mortgages and Consumer **		16,683				54
Total		$	251,475			250
** No NAICS code has been assigned.

COVID-19 Deferred Loans by Top Four NAICS Industries
(dollars in thousands)		September 30, 2020				Number of Loans
Real Estate Rental and Leasing
Lessors of Nonresidential Buildings (except Mini-warehouse)		$	94,382			50
Lessors of Residential Buildings and Dwellings		11,017				18
Other Activities Related to Real Estate		3,963				7
Lessors of Other Real Estate Property		3,506				6
General Rental Centers		830				3
Nonresidential Property Managers		600				2
Offices of Real Estate Agents and Brokers		126				1
Residential Property Managers		118				1
		$	114,542			88
Accommodation and Food Services
Hotels (except Casino Hotels) and Motels		$	34,095			9
Full-Service Restaurants		5,027				6
Limited-Service Restaurants		2,747				1
Caterers		1,412				2
		$	43,281			18
Other Services (except Public Administration)
Religious Organizations		$	28,607			16
Civic and Social Organizations		10,219				4
General Automotive Repair		848				1
Pet Care (except Veterinary) Services		661				3
Auto Body, Paint, & Interior Repair and Maintenance		639				1
		$	40,974			25
Health Care and Social Assistance
Assisted Living Facilities for the Elderly		$	9,129			3
Offices of Physicians (except Mental Health Specialists)		1,297				2
Offices of Dentists		824				5
Offices of Physical, Occupational and Speech Therapists, and Audiologists		23				1
		$	11,273			11

Allowance for loan losses ("ALLL") and provision for loan losses ("PLL")

Since December 31, 2019, the Company's general allowance increased reflecting economic uncertainty from the COVID-19 pandemic and the specific allowance decreased as specifically identified impaired loans were resolved. ALLL levels increased to 1.26% of portfolio loans at September 30, 2020 compared to 0.75% at December 31, 2019. At and for the three months ended September 30, 2020, the Company's ALLL increased $7.9 million or 72.1% to $18.8 million at September 30, 2020 from $10.9 million at December 31, 2019.

The Company recorded a $2.5 million and $10.1 million PLL for the three and nine months ended September 30, 2020 compared to $450,000 and $1.3 million for the three and nine months ended September 30, 2019. Net charge-offs also increased from comparable periods as we resolved several relationships that were substandard relationships prior to the pandemic. 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 increased provision was primarily due to the economic effects of the COVID-19 pandemic and considered the potential impact of our loan payment deferral program. The current year growth in the commercial loan portfolios also contributed to provision expense.

Management believes that COVID-19 deferred loans are more likely to default in the future and in our evaluation of the deferred loan portfolio, management considered the length of the deferral period, the type and amount of collateral and customer industries. The analysis considered the impact to the allowance model if certain metrics were available (e.g., delinquency), but will remain as unavailable indicators until most of our deferred loans return to a normal payment schedule. When most of the deferral periods end in the fourth quarter of 2020, we plan to use additional customer specific qualitative metrics in our ALLL calculation. The Company has established a process for tracking loans during the deferral period. All COVID-19 deferred loans are reviewed each quarter. 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 September 30, 2020, there were no COVID-19 deferred loans deemed to be non-accrual or substandard based on reviews.

Management believes that the allowance is adequate at September 30, 2020. The ALLL as a percent of total loans may increase in future periods based on our belief that the credit quality of our loan portfolio could decline and loan defaults may increase as a result of the COVID-19 pandemic.

Non-Performing Assets

Classified assets decreased $10.0 million from $34.6 million at December 31, 2019 to $24.6 million at September 30, 2020. 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 14 basis points from 1.75% at December 31, 2019 to 1.61% at September 30, 2020. Non-accrual loans, OREO and TDRs to total assets decreased 30 basis points from 1.46% at December 31, 2019 to 1.16% at September 30, 2020. 

Non-accrual loans increased $2.3 million from $17.9 million at December 31, 2019 to $20.1 million at September 30, 2020. The increase in non-accrual loans during the first nine months 2020 was largely the result of several substandard classified relationships that were performing before the COVID-19 crisis. Non-accrual loans of $2.9 million (14%) were current with all payments of principal and interest with specific reserves of $42,000 at September 30, 2020. Delinquent non-accrual loans were $17.2 million (86%) with specific reserves of $468,000 at September 30, 2020.

During the nine months ended September 30, 2020, the Company did not offer any COVID-19 deferrals to substandard credits and as of September 30, 2020 there were no non-accrual loans with approved COVID-19 loan deferrals in process. All COVID-19 deferred loans were current prior to the COVID-19 crisis.

The OREO balance decreased $3.8 million from $7.8 million at December 31, 2019 to $4.0 million at September 30, 2020. During the nine months ended September 30, 2020, OREO additions of $1.2 million consisted of a commercial lot with a contract expected to settle during the fourth quarter of 2020. OREO disposals of $2.8 million netted losses of $7,000 on disposals for the nine months ended September 30, 2020.

Balance Sheet

Assets

Total assets increased $339.9 million, or 18.9%, to $2.14 billion at September 30, 2020 compared to total assets of $1.80 billion at December 31, 2019 primarily due to increased net loans of $162.0 million with U.S. SBA PPP loans accounting for $131.1 million of the increase. In addition, total assets increased $21.6 million for investments, OREO decreased $3.8 million, cash increased $155.2 million and all other assets increased $4.9 million. The Company’s loan pipeline was approximately $152.0 million at September 30, 2020.

During the third quarter of 2020, total net loans, which include portfolio loans and U.S. SBA PPP loans, increased 0.7% annualized or $3.0 million from $1,604.1 million at June 30, 2020 to $1,607.1 million at September 30, 2020. Gross portfolio loans increased 1.0% annualized or $3.8 million from $1,492.7 million at June 30, 2020 to $1,496.5 million at September 30, 2020. 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 September 30, 2020 and December 31, 2019 were $687 million or 339% and $639 million or 320%, respectively. Construction loans as a percentage of risk-based capital at September 30, 2020 and December 31, 2019 were $144 million or 71% and $147 million or 74%, respectively. Regulatory loan concentrations increased in the first nine months of 2020 due to commercial real estate growth and due to a reduction in total regulatory capital from the redemption of the $23.0 million of 6.25% fixed-to-floating rate subordinated notes in February 2020.

Funding

The Bank uses retail deposits and wholesale funding. Wholesale funding includes short-term borrowings, long-term debt and brokered deposits. Retail deposits continue to be the most significant source of funds totaling $1,768.6 million or 97.1% of funding at September 30, 2020 compared to $1,510.8 million or 97.0% of funding at December 31, 2019. Wholesale funding, which consisted of FHLB advances and brokered deposits, was $53.3 million or 2.9% of funding at September 30, 2020 compared to $46.4 million or 3.0% of funding at December 31, 2019. The September 30, 2020 Federal Reserve Bank's PPPLF Program outstanding balance of $85.9 million is excluded from the preceding deposit and wholesale analysis.

Total deposits increased $267.8 million or 17.71% (23.6% annualized) at September 30, 2020 compared to December 31, 2019. The increase comprised a $298.5 million increase to transaction deposits offsetting a $30.7 million decrease to time deposits. Non-interest-bearing demand deposits increased $119.7 million or 49.62% at September 30, 2020, representing 20.3% of deposits, compared to 15.95% of deposits at December 31, 2019. The Bank increased on-balance sheet liquidity in the first nine months as deposit balances increased compared to the prior year. Customer deposit balances increased due to new customer acquisitions as well as lower levels of consumer and business spending related to the COVID-19 pandemic.

Management has increased oversight and review of customer line of credit usage. If we were to experience increases in draws on customer lines of credit or decreased deposit levels in future periods as a result of the distressed economic conditions in our market areas relating to the COVID-19 pandemic, our level of borrowed funds could increase.

Stockholders' Equity and Regulatory Capital

During the nine months ended September 30, 2020, total stockholders’ equity increased $11.4 million due to net income of $10.0 million, an increase in accumulated other comprehensive income of $3.3 million due to increased unrealized gains in the investment portfolio and net stock related activities in connection with stock-based compensation and ESOP activity of $225,000. These increases to stockholders’ equity were partially offset by common dividends paid of $2.1 million.

The Company’s ratio of tangible common equity ("TCE") to tangible assets decreased to 8.49% at September 30, 2020 from 9.44% at December 31, 2019 (see Non-GAAP reconciliation schedules). The decrease in the TCE ratio was due primarily to significant increases in cash and loans from COVID-19 government stimulus. In April 2020, banking regulators issued an interim final rule that excluded U.S. SBA PPP loans pledged under the PPPLF from the calculation of the leverage ratio. 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 September 30, 2020 with a Tier 1 capital to average assets ("leverage ratio") of 9.73% at September 30, 2020 compared to 10.08% at December 31, 2019.

On December 31, 2019, the Company issued a total of 312,747 shares of its common stock, par value $0.01 in a private placement offering. The Company received net proceeds of $10.6 million after deal expenses. On February 15, 2020, the Company used the proceeds and a cash dividend from the Bank to redeem the Company’s outstanding $23.0 million of 6.25% fixed-to-floating rate subordinated notes.

Due to economic uncertainties surrounding COVID-19, on October 14, 2020, the Company issued $20.0 million in aggregate principal amount 4.75% Fixed to Floating Rate Subordinated Notes due 2030 (the "Offering"), which will be treated as Tier 2 Capital at the Company. The Company contributed $10.0 million of net proceeds from the Offering to the Bank as Tier 1 Capital on October 15, 2020 and may use the remainder of the Offering net proceeds for general corporate purposes, to support bank regulatory capital ratios and for potential common stock share repurchases.

Results of Operations

		Three Months Ended September 30,
(dollars in thousands)		2020				2019				$ Change					% Change
Interest and dividend income		$	17,483			$	18,259			$	(776	)			(4.2	)	%
Interest expense		2,115				4,734				(2,619		)			(55.3	)	%
Net interest income		15,368				13,525				1,843					13.6		%
Provision for loan losses		2,500				450				2,050					455.6		%
Noninterest income		1,666				1,239				427					34.5		%
Noninterest expense		9,451				9,224				227					2.5		%
Income before income taxes		5,083				5,090				(7		)			(0.1	)	%
Income tax (income) expense		1,284				1,397				(113		)			(8.1	)	%
Net income		$	3,799			$	3,693			$	106				2.9		%

The increase to net income in the third quarter of 2020 compared to the same quarter in 2019 was due to increased net interest income and noninterest income, a decrease in income tax expense partially offset by increases in noninterest expense and provision for loan losses related to the economic uncertainty of the COVID-19 pandemic.

		Nine Months Ended September 30,
(dollars in thousands)		2020				2019				$ Change					% Change
Interest and dividend income		$	53,160			$	54,174			$	(1,014	)			(1.9	)	%
Interest expense		8,215				14,353				(6,138		)			(42.8	)	%
Net interest income		44,945				39,821				5,124					12.9		%
Provision for loan losses		10,100				1,325				8,775					662.3		%
Noninterest income		6,046				3,553				2,493					70.2		%
Noninterest expense		28,531				26,745				1,786					6.7		%
Income before income taxes		12,360				15,304				(2,944		)			(19.2	)	%
Income tax expense		2,363				4,107				(1,744		)			(42.5	)	%
Net income		$	9,997			$	11,197			$	(1,200	)			(10.7	)	%

The decrease to net income in the first nine months of 2020 compared to the same period in 2019 was due to increased provision for loan losses related to the economic uncertainty of the COVID-19 pandemic and increased noninterest expense partially offset by increases in net interest income and non-interest income and a decrease to income tax expense. The decrease in income tax expense was due to a change in the Company's state tax apportionment approach that was implemented in the first quarter of 2020 as well as lower pre-tax income.

Net Interest Income

Net interest income increased $1.84 million or 13.6% for the three months ended September 30, 2020 compared to the three months ended September 30, 2019. Net interest margin of 3.27% for the three months ended September 30, 2020 decreased six basis points from 3.33% for the comparable period. The increase in net interest income resulted primarily from significant decreases in interest expense from lower funding costs. Interest income decreased from significantly lower asset yields partially offset by increased interest income from larger average balances.

Net interest income increased $5.1 million or 12.9% for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. Net interest margin of 3.34% for the nine months ended September 30, 2020 was two basis points higher than the 3.32% for the nine months ended September 30, 2019. The increase in net interest margin from the first nine months of 2019 resulted primarily from the Company’s interest earning asset yields decreasing at a slower rate than overall funding costs. Interest earning asset yields decreased 57 basis points from 4.52% for the nine months ended September 30, 2019 to 3.95% for the nine months ended September 30, 2020. The Company’s cost of funds decreased 61 basis points from 1.24% for the nine months ended September 30, 2019 to 0.63% for the nine months ended September 30, 2020. For the nine months ended September 30, 2020, net interest margin was reduced six basis points as a result of net U.S. SBA PPP loans and Federal Reserve PPPLF funding.

The sharp decline in interest rates during the first nine months of 2020 not only reduced interest income on floating-rate commercial loans and liquid interest-earning assets, but it also reduced competitive pressures and depositor expectations concerning deposit interest rates. Due to a slightly liability-sensitive balance sheet, the Company increased its net interest margin in the first quarter of 2020, had stable margins during the second quarter of 2020 after adjusting for PPP loan and funding activity and had minimal net interest margin compression of seven basis point in the third quarter of 2020. Net interest margin declined from 3.34% for the three months ended June 30, 2020 to 3.27% for the three months ended September 30, 2020.

Some compression of our net interest margin is probable in the fourth quarter of 2020 as interest-earning assets begin to reprice faster than interest-bearing liabilities. The Bank's loan growth may slow due to overall economic conditions. Conversely, PPP loan forgiveness will positively impact margins and net interest income in the quarter(s) of forgiveness with the recognition of remaining net deferred fees.

Noninterest Income

Noninterest income increased $427,000 or 34.5% for the three months ended September 30, 2020 compared to the three months ended September 30, 2019. The increase for the comparable periods was primarily due to new revenues from interest rate protection referral fee income and gains on the sale of investment securities. During the fourth quarter of 2019, the Bank began referring customers to a third-party financial institution that offers interest rate protection for the length of a loan. Noninterest income as a percentage of average assets was 0.32% and 0.28%, respectively, for the three months ended September 30, 2020 and 2019.

Noninterest income increased $2.5 million or 70.2% for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. The increases were primarily due to increased interest rate protection referral fee income of $1.8 million and $670,000 in gains on sales of investments. Noninterest income as a percentage of assets was 0.41% and 0.27%, respectively, for the nine months ended September 30, 2020 and 2019. The COVID-19 crisis has impacted spending habits of customers and reduced growth in service fee income as well as curtailed expected commercial loan volume which impacts interest rate protection agreement referral fee opportunities.

Noninterest Expense

Noninterest expense increased $227,000 or a modest 2.5% for the three months ended September 30, 2020 compared to the three months ended September 30, 2019. The increase in noninterest expense for the comparable periods was due to increases in data processing, professional fees, FDIC insurance and OREO. Data processing costs are comparable to average 2020 quarterly expenses and include the Bank's continued investment in technology with the addition of the nCino Bank Operating System. The Company's investments in technology have slowed the growth of expenses as the asset size of the Bank has increased. The increase in FDIC insurance for the third quarter of 2020 was due to the application of a $172,000 FDIC insurance credit taken in the third quarter of 2019. Increased OREO expenses reflect management's actions in 2020 to reduce non-performing assets. These increases in noninterest expense were partially offset by reductions in compensation and benefits and advertising. Compensation and benefits were lower in the third quarter of 2020 primarily due to reductions in health care costs and 401K employer contributions. The Company's projected quarterly expense run rate for the remainder of 2020 remains between $9.2-$9.4 million.

The Company’s efficiency ratio was 55.48% for the three months ended September 30, 2020 compared to 62.48% for the three months ended September 30, 2019. The Company’s net operating expense ratio was 1.50% for the three months ended September 30, 2020 compared to 1.82% for the three months ended September 30, 2019. 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.

Noninterest expense increased $1.8 million or 6.7% for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. The increase in noninterest expense for the comparable periods was primarily due to increased OREO expenses. Noninterest expense increased for the comparable periods as increases in data processing, professional fees and FDIC insurance were offset by decreases in all other operating expenses including occupancy, advertising, depreciation and other expenses. Noninterest expense increased $234,000 or less than 1% for the comparable periods if OREO expenses were excluded.

Year to date compensation and benefits for the nine months ended were reduced a total $484,000 due to the allocation of deferred costs for U.S. SBA PPP loans originated during the second and third quarter of 2020.

The Company’s efficiency ratio was 55.95% for the nine months ended September 30, 2020 compared to 61.66% for the nine months ended September 30, 2019. The Company’s net operating expense ratio was 1.53% at September 30, 2020 compared to 1.79% at September 30, 2019. 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 nine months ended September 30, 2020 the effective tax rate at 19.1%.The Company's new state tax apportionment approach was implemented during the first quarter of 2020 and included the impact of amended income tax filings of the Company and 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 nine months ended September 30, 2020 split between the apportionment adjustment and a normalized 2020 income tax provision:

		Nine Months Ended September 30, 2020
(dollars in thousands)		Tax Provision				Effective Tax Rate
Income tax apportionment adjustment		$	(743	)		(6.0	)	%
Income taxes before apportionment adjustment		3,106				25.1		%
Income tax expense as reported		$	2,363			19.1		%
Income before income taxes		$	12,360

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 $2.1 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 banking centers are located at its main office in Waldorf, Maryland, and branch offices in Waldorf, 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 Community Bank of the Chesapeake’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 the County First acquisition, or any other acquisition that we undertake in the future; may not be realized within the expected time frames; changes in The Community Financial Corporation or Community Bank of the Chesapeake’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, 2019 and the Company's Quarterly Report on Form 10-Q for the Period Ended June 30, 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 September 30, 2020. 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, 2019.

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

SUPPLEMENTAL QUARTERLY FINANCIAL DATA
 CONSOLIDATED INCOME STATEMENT

		Three Months Ended
(dollars in thousands)		September 30, 2020				June 30, 2020				March 31, 2020				December 31, 2019				September 30, 2019
Interest and Dividend Income
Loans, including fees		$	16,176			$	16,277			$	16,502			$	16,565			$	16,542
Interest and dividends on securities		1,269				1,341				1,469				1,508				1,606
Interest on deposits with banks		38				20				68				206				111
Total Interest and Dividend Income		17,483				17,638				18,039				18,279				18,259
Interest Expense
Deposits		1,534				1,937				3,044				3,777				3,867
Short-term borrowings		14				28				69				65				140
Long-term debt		567				449				573				724				727
Total Interest Expense		2,115				2,414				3,686				4,566				4,734
Net Interest Income (NII)		15,368				15,224				14,353				13,713				13,525
Provision for loan losses		2,500				3,500				4,100				805				450
NII After Provision For Loan Losses		12,868				11,724				10,253				12,908				13,075
Noninterest Income
Loan appraisal, credit, and misc. charges		49				35				14				131				109
Gain on sale of assets		6				—				—				—				—
Net gains on sale of investment securities		229				112				329				226				—
Unrealized gain (losses) on equity securities		—				40				75				(22		)		35
Loss on premises and equipment held for sale		—				—				—				(1		)		—
Income from bank owned life insurance		222				220				219				223				223
Service charges		839				709				982				916				834
Referral fee income		321				1,143				502				740				38
Total Noninterest Income		1,666				2,259				2,121				2,213				1,239
Noninterest Expense
Compensation and benefits		5,099				4,714				5,188				5,408				5,353
OREO valuation allowance and expenses		421				1,100				782				212				263
Sub Total		5,520				5,814				5,970				5,620				5,616
Operating Expenses
Occupancy expense		734				736				734				812				730
Advertising		129				130				121				152				250
Data processing expense		990				924				928				780				793
Professional fees		652				477				626				649				523
Depreciation of premises and equipment		142				151				158				165				165
Telephone communications		43				53				43				39				46
Office supplies		31				30				31				45				34
FDIC Insurance		249				260				170				(3		)		2
Core deposit intangible amortization		144				151				157				163				169
Other		817				671				745				1,066				896
Total Operating Expenses		3,931				3,583				3,713				3,868				3,608
Total Noninterest Expense		9,451				9,397				9,683				9,488				9,224
Income before income taxes		5,083				4,586				2,691				5,633				5,090
Income tax expense		1,284				1,136				(57		)		1,558				1,397
Net Income		$	3,799			$	3,450			$	2,748			$	4,075			$	3,693

SUPPLEMENTAL QUARTERLY FINANCIAL DATA - Continued
 CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share amounts)		September 30, 2020				June 30, 2020				March 31, 2020				December 31, 2019				September 30, 2019
Assets
Cash and due from banks		$	93,130			$	103,914			$	15,498			$	25,065			$	37,923
Federal funds sold		69,431				29,456				—				—				42,205
Interest-bearing deposits with banks		25,132				13,051				10,344				7,404				36,563
Securities available for sale (AFS), at fair value		229,620				234,982				214,163				208,187				131,288
Securities held to maturity (HTM), at amortized cost		—				—				—				—				88,654
Equity securities carried at fair value through income		4,851				4,831				4,768				4,669				4,665
Non-marketable equity securities held in other financial institutions		209				209				209				209				209
Federal Home Loan Bank (FHLB) stock - at cost		3,415				4,691				5,627				3,447				4,510
Net U.S. Small Business Administration ("SBA") Paycheck Protection ("PPP") Loans		127,811				125,638				—				—				—
Portfolio Loans Receivable net of allowance for loan losses of $18,829, $16,319, $15,061, $10,942 and $11,252		1,479,313				1,478,498				1,477,087				1,445,109				1,405,856
Net Loans		1,607,124				1,604,136				1,477,087				1,445,109				1,405,856
Goodwill		10,835				10,835				10,835				10,835				10,835
Premises and equipment, net		20,671				20,972				21,305				21,662				22,320
Premises and equipment held for sale		430				430				430				430				—
Other real estate owned (OREO)		3,998				3,695				6,338				7,773				10,195
Accrued interest receivable		8,975				6,773				5,077				5,019				5,213
Investment in bank owned life insurance		37,841				37,619				37,399				37,180				36,958
Core deposit intangible		1,666				1,810				1,961				2,118				2,281
Net deferred tax assets		7,307				6,565				6,421				6,168				5,979
Right of use assets - operating leases		8,005				8,132				8,257				8,382				8,521
Other assets		4,797				1,655				902				3,879				1,557
Total Assets		$	2,137,437			$	2,093,756			$	1,826,621			$	1,797,536			$	1,855,732
Liabilities and Stockholders' Equity
Liabilities
Deposits
Non-interest-bearing deposits		$	360,839			$	356,196			$	254,114			$	241,174			$	243,425
Interest-bearing deposits		1,418,767				1,314,168				1,258,475				1,270,663				1,316,535
Total deposits		1,779,606				1,670,364				1,512,589				1,511,837				1,559,960
Short-term borrowings		—				5,000				27,000				5,000				15,000
Long-term debt		42,319				67,336				67,353				40,370				55,387
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 - 6.25%		—				—								23,000				23,000
Lease liabilities - operating leases		8,193				8,296				8,397				8,495				8,607
Accrued expenses and other liabilities		16,576				14,517				14,015				15,340				14,369
Total Liabilities		1,944,587				1,904,314				1,641,354				1,616,042				1,688,323
Stockholders' Equity
Common stock		59				59				59				59				56
Additional paid in capital		95,799				95,687				95,581				95,474				84,713
Retained earnings		92,814				89,781				87,070				85,059				81,682
Accumulated other comprehensive income (loss)		4,780				4,517				3,159				1,504				1,715
Unearned ESOP shares		(602		)		(602		)		(602		)		(602		)		(757		)
Total Stockholders' Equity		192,850				189,442				185,267				181,494				167,409
Total Liabilities and Stockholders' Equity		$	2,137,437			$	2,093,756			$	1,826,621			$	1,797,536			$	1,855,732
Common shares issued and outstanding		5,911,940				5,911,715				5,910,064				5,900,249				5,583,492

SUPPLEMENTAL QUARTERLY FINANCIAL DATA - Continued
SELECTED FINANCIAL INFORMATION AND RATIOS

		Three Months Ended
(dollars in thousands, except per share amounts)		September 30, 2020				June 30, 2020				March 31, 2020				December 31, 2019				September 30, 2019
KEY OPERATING RATIOS
Return on average assets ("ROAA")		0.73		%		0.69		%		0.61		%		0.91		%		0.84		%
Pre-tax Pre-Provision ROAA**		1.46				1.62				1.51				1.43				1.26
Return on average common equity ("ROACE")		7.86				7.27				6.00				9.58				8.86
Pre-tax Pre-Provision ROACE**		15.69				17.03				14.82				15.14				13.29
Average total equity to average total assets		9.33				9.52				10.20				9.46				9.50
Interest rate spread		3.15				3.21				3.21				3.05				3.07
Net interest margin		3.27				3.34				3.43				3.29				3.33
Cost of funds		0.46				0.54				0.93				1.14				1.21
Cost of deposits		0.37				0.48				0.82				1.00				1.05
Cost of debt		1.16				1.06				2.61				3.19				3.54
Efficiency ratio		55.48				53.75				58.78				59.58				62.48
Non-interest expense to average assets		1.82				1.88				2.15				2.11				2.10
Net operating expense to average assets		1.50				1.43				1.68				1.62				1.82
Avg. int-earning assets to avg. int-bearing liabilities		125.40				125.51				124.44				122.50				122.24
Net charge-offs to average portfolio loans		—				0.61				—				0.32				0.03
COMMON SHARE DATA
Basic net income per common share		$	0.64			$	0.59			$	0.47			$	0.73			$	0.66
Diluted net income per common share		0.64				0.59				0.47				0.73				0.66
Cash dividends paid per common share		0.125				0.125				0.125				0.13				0.13
Basic - weighted average common shares outstanding		5,895,074				5,894,009				5,886,981				5,563,455				5,560,878
Diluted - weighted average common shares outstanding		5,895,074				5,894,009				5,886,981				5,563,455				5,560,878
ASSET QUALITY
Total assets		$	2,137,437			$	2,093,756			$	1,826,621			$	1,797,536			$	1,855,732
Gross portfolio loans (1)		1,496,532				1,492,745				1,490,089				1,454,172				1,415,417
Classified assets		24,600				25,115				33,489				34,636				37,166
Allowance for loan losses		18,829				16,319				15,061				10,942				11,252
Past due loans - 31 to 89 days		838				5,843				7,921				549				2,252
Past due loans >=90 days		17,230				20,072				12,877				12,778				11,673
Total past due loans (2) (3)		18,068				25,915				20,798				13,327				13,925
Non-accrual loans (4)		20,148				22,896				16,349				17,857				15,433
Accruing troubled debt restructures (TDRs)		573				593				641				650				655
Other real estate owned (OREO)		3,998				3,695				6,338				7,773				10,195
Non-accrual loans, OREO and TDRs		$	24,719			$	27,184			$	23,328			$	26,280			$	26,283

** 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) As of October 30, 2020 there were zero loans that were reported as delinquent as of September 30, 2020 with approved COVID-19 loan deferrals not yet completed.
(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 September 30, 2020 and December 31, 2019, the Company had current non-accrual loans of $2.9 million and $5.1 million, respectively.

SUPPLEMENTAL QUARTERLY FINANCIAL DATA - Continued
SELECTED FINANCIAL INFORMATION AND RATIOS

		Three Months Ended
(dollars in thousands, except per share amounts)		September 30, 2020				June 30, 2020				March 31, 2020				December 31, 2019				September 30, 2019
ASSET QUALITY RATIOS (1)
Classified assets to total assets		1.15		%		1.20		%		1.83		%		1.93		%		2.00		%
Classified assets to risk-based capital		11.89				12.49				17.00				16.21				18.63
Allowance for loan losses to total loans		1.26				1.09				1.01				0.75				0.79
Allowance for loan losses to non-accrual loans		93.45				71.27				92.12				61.28				72.91
Past due loans - 31 to 89 days to total loans		0.06				0.39				0.53				0.04				0.16
Past due loans >=90 days to total loans		1.15				1.34				0.86				0.88				0.82
Total past due (delinquency) to total loans		1.21				1.74				1.40				0.92				0.98
Non-accrual loans to total loans		1.35				1.53				1.10				1.23				1.09
Non-accrual loans and TDRs to total loans		1.38				1.57				1.14				1.27				1.14
Non-accrual loans and OREO to total assets		1.13				1.27				1.24				1.43				1.38
Non-accrual loans and OREO to total loans and OREO		1.61				1.78				1.52				1.75				1.80
Non-accrual loans, OREO and TDRs to total assets		1.16				1.30				1.28				1.46				1.42
COMMON SHARE DATA
Book value per common share		$	32.62			$	32.05			$	31.35			$	30.76			$	29.98
Tangible book value per common share**		30.51				29.91				29.18				28.57				27.63
Common shares outstanding at end of period		5,911,940				5,911,715				5,910,064				5,900,249				5,583,492
OTHER DATA
Full-time equivalent employees			189				194				196				194				198
Branches			12				12				12				12				12
Loan Production Offices			4				4				4				5				5
CAPITAL RATIOS
Tier 1 capital to average assets		9.73		%		9.76		%		10.20		%		10.08		%		9.49		%
Tier 1 common capital to risk-weighted assets		11.11				11.12				11.04				11.11				10.35
Tier 1 capital to risk-weighted assets		11.87				11.89				11.82				11.91				11.16
Total risk-based capital to risk-weighted assets		13.06				12.94				12.80				14.16				13.48
Common equity to assets		9.02				9.05				10.14				10.10				9.02
Tangible common equity to tangible assets **		8.49				8.50				9.51				9.44				8.37

** 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

		Nine Months Ended September 30,
(dollars in thousands)		2020				2019
Interest and Dividend Income
Loans, including fees		$	48,955			$	49,037
Interest and dividends on securities		4,079				4,906
Interest on deposits with banks		126				231
Total Interest and Dividend Income		53,160				54,174
Interest Expense
Deposits		6,515				11,601
Short-term borrowings		111				709
Long-term debt		1,589				2,043
Total Interest Expense		8,215				14,353
Net Interest Income (NII)		44,945				39,821
Provision for loan losses		10,100				1,325
NII After Provision For Loan Losses		34,845				38,496
Noninterest Income
Loan appraisal, credit, and misc. charges		98				204
Gain on sale of assets		6				—
Net gains on sale of investment securities		670				—
Unrealized gain on equity securities		115				156
Income from bank owned life insurance		661				662
Service charges		2,530				2,392
Referral fee income		1,966				139
Total Noninterest Income		6,046				3,553
Noninterest Expense
Compensation and benefits		15,001				15,037
OREO valuation allowance and expenses		2,303				751
Sub-total		17,304				15,788
Operating Expense
Occupancy expense		2,204				2,289
Advertising		380				610
Data processing expense		2,842				2,268
Professional fees		1,755				1,547
Depreciation of premises and equipment		451				520
Telephone communications		139				164
Office supplies		92				104
FDIC Insurance		679				337
Core deposit intangible amortization		452				525
Other		2,233				2,593
Total Operating Expense		11,227				10,957
Total Noninterest Expense		28,531				26,745
Income before income taxes		12,360				15,304
Income tax expense		2,363				4,107
Net Income		$	9,997			$	11,197

SUPPLEMENTAL YEAR TO DATE FINANCIAL DATA 

		Nine Months Ended September 30,
		2020				2019
KEY OPERATING RATIOS
Return on average assets ("ROAA")		0.68		%		0.87		%
Pre-tax Pre-Provision ROAA**		1.53				1.29
Return on average common equity ("ROACE")		7.06				9.22
Pre-tax Pre-Provision ROACE**		15.86				13.70
Average total equity to average total assets		9.66				9.38
Interest rate spread		3.19				3.07
Net interest margin		3.34				3.32
Cost of funds		0.63				1.24
Cost of deposits		0.55				1.07
Cost of debt		1.42				3.72
Efficiency ratio		55.95				61.66
Non-interest expense to average assets		1.95				2.07
Net operating expense to average assets		1.53				1.79
Avg. int-earning assets to avg. int-bearing liabilities		125.14				121.31
Net charge-offs to average portfolio loans		0.20				0.10
COMMON SHARE DATA
Basic net income per common share		$	1.70			$	2.01
Diluted net income per common share		1.70				2.01
Cash dividends paid per common share		0.38				0.38
Weighted average common shares outstanding:
Basic		5,892,107				5,559,622
Diluted		5,892,107				5,559,622

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

RECONCILIATION OF NON-GAAP MEASURES

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)		September 30, 2020				June 30, 2020				March 31, 2020				December 31, 2019				September 30, 2019
Total assets		$	2,137,437			$	2,093,756			$	1,826,621			$	1,797,536			$	1,855,732
Less: intangible assets
Goodwill		10,835				10,835				10,835				10,835				10,835
Core deposit intangible		1,666				1,810				1,961				2,118				2,281
Total intangible assets		12,501				12,645				12,796				12,953				13,116
Tangible assets		$	2,124,936			$	2,081,111			$	1,813,825			$	1,784,583			$	1,842,616
Total common equity		$	192,850			$	189,442			$	185,267			$	181,494			$	167,409
Less: intangible assets		12,501				12,645				12,796				12,953				13,116
Tangible common equity		$	180,349			$	176,797			$	172,471			$	168,541			$	154,293
Common shares outstanding at end of period		5,911,940				5,911,715				5,910,064				5,900,249				5,583,492
GAAP common equity to assets		9.02		%		9.05		%		10.14		%		10.10		%		9.02		%
Non-GAAP tangible common equity to tangible assets		8.49		%		8.50		%		9.51		%		9.44		%		8.37		%
GAAP common book value per share		$	32.62			$	32.05			$	31.35			$	30.76			$	29.98
Non-GAAP tangible common book value per share		$	30.51			$	29.91			$	29.18			$	28.57			$	27.63

RECONCILIATION OF NON-GAAP MEASURES

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

We believe that pre-tax pre-provision income, which reflects our profitability before income taxes and loan loss provisions, allows investors to better assess our operating income and expenses in relation to our core operating revenue by removing the volatility that is associated with credit provisions and different state income tax rates for comparable institutions. We also believe 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																					Nine Months Ended
(dollars in thousands)		September 30, 2020				June 30, 2020				March 31, 2020					December 31, 2019				September 30, 2019				September 30, 2020				September 30, 2019
Net income (as reported)		$	3,799			$	3,450			$	2,748				$	4,075			$	3,693			$	9,997			$	11,197
Provision for loan losses		2,500				3,500				4,100					805				450				10,100				1,325
Income tax expenses		1,284				1,136				(57		)			1,558				1,397				2,363				4,107
Non-GAAP PTPP income		$	7,583			$	8,086			$	6,791				$	6,438			$	5,540			$	22,460			$	16,629
GAAP ROAA		0.73		%		0.69		%		0.61			%		0.91		%		0.84		%		0.68		%		0.87		%
Pre-tax Pre-Provision ROAA		1.46		%		1.62		%		1.51			%		1.43		%		1.26		%		1.53		%		1.29		%
GAAP ROACE		7.86		%		7.27		%		6.00			%		9.58		%		8.86		%		7.06		%		9.22		%
Pre-tax Pre-Provision ROACE		15.69		%		17.03		%		14.82			%		15.14		%		13.29		%		15.86		%		13.70		%
Average assets		$	2,071,487			$	1,995,552			$	1,797,426				$	1,797,182			$	1,755,022			$	1,955,247			$	1,725,339
Average equity		$	193,351			$	189,890			$	183,272				$	170,058			$	166,695			$	188,853			$	161,873

AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME

		For the Three Months Ended September 30,																				For the Three Months Ended
		2020										2019										September 30, 2020										June 30, 2020
(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		$	1,006,436			$	10,627		4.22	%		$	923,724			$	10,790		4.67	%		$	1,006,436			$	10,627		4.22	%		$	981,188			$	10,537		4.30	%
Residential first mortgages		157,039				1,188			3.03	%		160,609				1,486			3.70	%		157,039				1,188			3.03	%		168,958				1,397			3.31	%
Residential rentals		132,572				1,499			4.52	%		119,343				1,618			5.42	%		132,572				1,499			4.52	%		131,018				1,521			4.64	%
Construction and land development		38,861				448			4.61	%		31,200				459			5.88	%		38,861				448			4.61	%		39,856				445			4.47	%
Home equity and second mortgages		32,670				295			3.61	%		36,061				538			5.97	%		32,670				295			3.61	%		35,135				318			3.62	%
Commercial and equipment loans		116,472				1,205			4.14	%		116,329				1,635			5.62	%		116,472				1,205			4.14	%		131,186				1,554			4.74	%
SBA PPP loans		127,092				902			2.84	%		—				—			—	%		127,092				902			2.84	%		90,132				493			2.19	%
Consumer loans		1,102				12			4.36	%		945				16			6.77	%		1,102				12			4.36	%		1,119				12			4.29	%
Allowance for loan losses		(16,738		)		—			—	%		(11,046		)		—			—	%		(16,738		)		—			—	%		(15,597		)		—			—	%
Loan portfolio (1)		$	1,595,506			$	16,176		4.06	%		$	1,377,165			$	16,542		4.80	%		$	1,595,506			$	16,176		4.06	%		$	1,562,995			$	16,277		4.17	%
Taxable investment securities		218,305				1,143			2.09	%		232,707				1,606			2.76	%		218,305				1,143			2.09	%		211,917				1,248			2.36	%
Nontaxable investment securities		23,633				126			2.13	%		—				—			—	%		23,633				126			2.13	%		12,586				93			2.96	%
Interest-bearing deposits in other banks		24,713				25			0.40	%		2,901				33			4.55	%		24,713				25			0.40	%		17,384				11			0.25	%
Federal funds sold		20,561				13			0.25	%		10,788				78			2.89	%		20,561				13			0.25	%		15,893				9			0.23	%
Total Interest-Earning Assets		1,882,718				17,483			3.71	%		1,623,561				18,259			4.50	%		1,882,718				17,483			3.71	%		1,820,775				17,638			3.87	%
Cash and cash equivalents		87,895										26,253										87,895										73,206
Goodwill		10,835										10,835										10,835										10,835
Core deposit intangible		1,761										2,392										1,761										1,909
Other assets		88,278										91,981										88,278										88,827
Total Assets		$	2,071,487									$	1,755,022									$	2,071,487									$	1,995,552
Liabilities and Stockholders' Equity
Noninterest-bearing demand deposits		$	351,951			$	—		—	%		$	235,950			$	—		—	%		$	351,951			$	—		—	%		$	332,642			$	—		—	%
Interest-bearing deposits
Savings		89,036				20			0.09	%		70,669				18			0.10	%		89,036				20			0.09	%		81,019				30			0.15	%
Interest-bearing demand and money market accounts		848,981				313			0.15	%		706,574				1,624			0.92	%		848,981				313			0.15	%		816,836				481			0.24	%
Certificates of deposit		363,296				1,201			1.32	%		453,014				2,225			1.96	%		363,296				1,201			1.32	%		373,129				1,426			1.53	%
Total interest-bearing deposits		1,301,313				1,534			0.47	%		1,230,257				3,867			1.26	%		1,301,313				1,534			0.47	%		1,270,984				1,937			0.61	%
Total Deposits		1,653,264				1,534			0.37	%		1,466,207				3,867			1.05	%		1,653,264				1,534			0.37	%		1,603,626				1,937			0.48	%
Long-term debt		63,847				380			2.38	%		40,447				223			2.21	%		63,847				380			2.38	%		67,342				276			1.64	%
Short-term debt		3,159				14			1.77	%		22,509				140			2.49	%		3,159				14			1.77	%		13,077				28			0.86	%
PPPLF Advance		121,070				107			0.35	%		—				—			—	%		121,070				107			0.35	%		87,332				76			0.35	%
Subordinated Notes		—				—			—	%		23,000				359			6.24	%		—				—			—	%		—				—			—	%
Guaranteed preferred beneficial interest in junior subordinated debentures		12,000				80			2.67	%		12,000				145			4.83	%		12,000				80			2.67	%		12,000				97			3.23	%
Total Debt		200,076				581			1.16	%		97,956				867			3.54	%		200,076				581			1.16	%		179,751				477			1.06	%
Interest-Bearing Liabilities		1,501,389				2,115			0.56	%		1,328,213				4,734			1.43	%		1,501,389				2,115			0.56	%		1,450,735				2,414			0.67	%
Total Funds		1,853,340				2,115			0.46	%		1,564,163				4,734			1.21	%		1,853,340				2,115			0.46	%		1,783,377				2,414			0.54	%
Other liabilities		24,796										24,164										24,796										22,285
Stockholders' equity		193,351										166,695										193,351										189,890
Total Liabilities and Stockholders' Equity		$	2,071,487									$	1,755,022									$	2,071,487									$	1,995,552
Net interest income						$	15,368									$	13,525									$	15,368									$	15,224
Interest rate spread									3.15	%									3.07	%									3.15	%									3.21	%
Net yield on interest-earning assets									3.27	%									3.33	%									3.27	%									3.34	%
Average interest-earning assets to average interest-bearing liabilities									125.40	%									122.24	%									125.40	%									125.51	%
Average loans to average deposits									96.51	%									93.93	%									96.51	%									97.47	%
Average transaction deposits to total average deposits **									78.03	%									69.10	%									78.03	%									76.73	%
Cost of funds									0.46	%									1.21	%									0.46	%									0.54	%
Cost of deposits									0.37	%									1.05	%									0.37	%									0.48	%
Cost of debt									1.16	%									3.54	%									1.16	%									1.06	%

(1) Loan average balance includes non-accrual loans. There are no tax equivalency adjustments. There was $111,000, $242,000 and $181,000 of accretion interest for the three months ended September 30, 2020 and 2019, and June 30, 2020, respectively.

** Transaction deposits exclude time deposits.

AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME

		For the Nine Months Ended September 30,
		2020										2019
(dollars in thousands)		Average Balance				Interest			Average Yield/Cost			Average Balance				Interest			Average Yield/Cost
Assets
Interest-earning assets:
Commercial real estate		$	981,944			$	32,406		4.40	%		$	903,984			$	31,972		4.72	%
Residential first mortgages		165,632				4,098			3.30	%		157,429				4,383			3.71	%
Residential rentals		131,839				4,373			4.42	%		122,606				4,701			5.11	%
Construction and land development		38,608				1,360			4.70	%		32,550				1,429			5.85	%
Home equity and second mortgages		34,604				1,066			4.11	%		36,407				1,589			5.82	%
Commercial and equipment loans		119,927				4,219			4.69	%		116,083				4,918			5.65	%
SBA PPP loans		76,418				1,395			2.43	%		—				—			—	%
Consumer loans		1,113				38			4.55	%		886				45			6.77	%
Allowance for loan losses		(14,521		)		—			—	%		(11,067		)		—			—	%
Loan portfolio (1)		$	1,535,564			$	48,955		4.25	%		$	1,358,878			$	49,037		4.81	%
Taxable investment securities		215,223				3,854			2.39			230,708				4,906			2.84
Nontaxable investment securities		12,144				225			2.47			—				—			—
Interest-bearing deposits in other banks		16,246				87			0.71			3,204				104			4.33
Federal funds sold		13,520				39			0.38			5,802				127			2.92
Total Interest-Earning Assets		1,792,697				53,160			3.95			1,598,592				54,174			4.52
Cash and cash equivalents		61,832										21,438
Goodwill		10,835										10,835
Core deposit intangible		1,910										2,565
Other assets		87,973										91,909
Total Assets		$	1,955,247									$	1,725,339
Liabilities and Stockholders' Equity
Noninterest-bearing demand deposits		310,451				—			—	%		221,315				—			—	%
Interest-bearing liabilities:
Savings		80,412				68			0.11			70,559				$	53		0.10
Interest-bearing demand and money market accounts		816,975				2,118			0.35			690,208				4,984			0.96
Certificates of deposit		375,606				4,329			1.54			458,376				6,564			1.91
Total Interest-bearing deposits		1,272,993				6,515			0.68			1,219,143				11,601			1.27
Total Deposits		1,583,444				6,515			0.55			1,440,458				11,601			1.07
Debt:
Long-term debt		62,101				916			1.97			27,094				515			2.53
Short-term borrowings		10,895				111			1.36			36,492				709			2.59
PPPLF Advances		69,656				182			0.35			—				—			—
Subordinated Notes		4,953				184			4.95			23,000				1,078			6.25
Guaranteed preferred beneficial interest in junior subordinated debentures		12,000				307			3.41			12,000				450			5.00
Total Debt		159,605				1,700			1.42			98,586				2,752			3.72
Total Interest-Bearing Liabilities		1,432,598				8,215			0.76			1,317,729				14,353			1.45
Total funds		1,743,049				8,215			0.63			1,539,044				14,353			1.24
Other liabilities		23,345										24,422
Stockholders' equity		188,853										161,873
Total Liabilities and Stockholders' Equity		$	1,955,247									$	1,725,339
Net interest income						$	44,945									$	39,821
Interest rate spread									3.19	%									3.07	%
Net yield on interest-earning assets									3.34	%									3.32	%
Average interest-earning assets to average interest-bearing liabilities									125.14	%									121.31	%
Average loans to average deposits									96.98	%									94.34	%
Average transaction deposits to total average deposits **									76.28	%									68.18	%
Cost of funds									0.63	%									1.24	%
Cost of deposits									0.55	%									1.07	%
Cost of debt									1.42	%									3.72	%

(1) Loan average balance includes non-accrual loans. There are no tax equivalency adjustments. There was $514,000 and $624,000 of accretion interest during the nine months ended September 30, 2020 and 2019, respectively.

** Transaction deposits exclude time deposits.

SUMMARY OF LOAN PORTFOLIO
(dollars in thousands)

BY LOAN TYPE		September 30, 2020				%				June 30, 2020				%			March 31, 2020				%			December 31, 2019				%			September 30, 2019				%
Portfolio Type:
Commercial real estate		$	1,021,987			68.29		%		$	996,111			66.73	%		$	977,678			65.61	%		$	964,777			66.34	%		$	932,344			65.86	%
Residential first mortgages		147,756				9.87		%		165,670				11.10	%		170,795				11.46	%		167,710				11.53	%		163,727				11.57	%
Residential rentals		137,950				9.22		%		132,590				8.88	%		133,016				8.93	%		123,601				8.50	%		121,170				8.56	%
Construction and land development		36,061				2.41		%		37,580				2.52	%		38,627				2.59	%		34,133				2.35	%		30,774				2.17	%
Home equity and second mortgages		31,427				2.10		%		33,873				2.27	%		35,937				2.41	%		36,098				2.48	%		36,182				2.56	%
Commercial loans		58,894				3.94		%		63,249				4.24	%		70,971				4.76	%		63,102				4.34	%		69,179				4.89	%
Consumer loans		1,081				0.07		%		1,117				0.07	%		1,134				0.08	%		1,104				0.08	%		937				0.07	%
Commercial equipment		61,376				4.10		%		62,555				4.19	%		61,931				4.16	%		63,647				4.38	%		61,104				4.32	%
Gross portfolio loans		1,496,532				100.00		%		1,492,745				100.00	%		1,490,089				100.00	%		1,454,172				100.00	%		1,415,417				100.00	%
Net deferred costs		1,610				(0.11	)	%		2,072				0.14	%		2,059				0.14	%		1,879				0.13	%		1,691				0.12	%
Allowance for loan losses		(18,829		)						(16,319		)					(15,061		)					(10,942		)					(11,252		)
		(17,219		)						(14,247		)					(13,002		)					(9,063		)					(9,561		)
Net portfolio loans		$	1,479,313							$	1,478,498						$	1,477,087						$	1,445,109						$	1,405,856
U.S. SBA PPP loans		$	131,088							$	129,384						$	—						$	—						$	—
Net deferred fees		(3,277		)						(3,746		)					—							—							—
Net SBA PPP loans		$	127,811							$	125,638						$	—						$	—						$	—
Total net loans		$	1,607,124							$	1,604,136						$	1,477,087						$	1,445,109						$	1,405,856
Gross loans		$	1,627,620							$	1,622,129						$	1,490,089						$	1,454,172						$	1,415,417

END OF PERIOD CONTRACTUAL RATES

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: 

		September 30, 2020			June 30, 2020			March 31, 2020			December 31, 2019			September 30, 2019
(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		4.20	%		4.32	%		4.52	%		4.59	%		4.64	%
Residential first mortgages		3.93	%		3.93	%		3.93	%		3.95	%		3.96	%
Residential rentals		4.30	%		4.45	%		4.69	%		4.79	%		4.80	%
Construction and land development		4.40	%		4.46	%		5.02	%		5.12	%		5.29	%
Home equity and second mortgages		3.56	%		3.56	%		4.89	%		4.90	%		5.38	%
Commercial loans		4.51	%		4.53	%		4.92	%		5.26	%		5.65	%
Consumer loans		5.94	%		6.05	%		6.17	%		6.25	%		6.41	%
Commercial equipment		4.42	%		4.44	%		4.46	%		4.49	%		4.59	%
U.S. SBA PPP loans		1.00	%		1.00	%		—	%		—	%		—	%
Total Loans		3.94	%		4.03	%		4.51	%		4.58	%		4.66	%
Yields without U.S. SBA PPP Loans		4.20			4.29	%		—	%		—	%		—	%

ALLOWANCE FOR LOAN LOSSES

		For the Three Months Ended
(dollars in thousands)		September 30, 2020					June 30, 2020					March 31, 2020				December 31, 2019					September 30, 2019
Beginning of period		$	16,319				$	15,061				$	10,942			$	11,252				$	10,918
Charge-offs		(65		)			(2,262		)			—				(1,155		)			(144		)
Recoveries		75					20					19				40					28
Net charge-offs		10					(2,242		)			19				(1,115		)			(116		)
Provision for loan losses		2,500					3,500					4,100				805					450
End of period		$	18,829				$	16,319				$	15,061			$	10,942				$	11,252
Net charge-offs to average portfolio loans (annualized)		—			%		(0.61		)	%		—		%		(0.32		)	%		(0.03		)	%
Breakdown of general and specific allowance as a percentage of gross portfolio loans1
General allowance		$	18,319				$	16,215				$	13,412			$	10,114				$	9,776
Specific allowance		510					104					1,649				828					1,476
		$	18,829				$	16,319				$	15,061			$	10,942				$	11,252
General allowance		1.22			%		1.09			%		0.90		%		0.70			%		0.69			%
Specific allowance		0.03			%		0.01			%		0.11		%		0.05			%		0.10			%
Allowance to gross portfolio loans		1.26			%		1.09			%		1.01		%		0.75			%		0.79			%
Allowance to non-acquired gross loans		1.31			%		1.14			%		1.06		%		0.79			%		0.85			%

CLASSIFIED AND SPECIAL MENTION ASSETS

The following is a breakdown of the Company’s classified and special mention assets at September 30, 2020, June 30, 2020, March 31, 2020 and December 31, 2019, 2018, 2017, and 2016, respectively: 

		As of
(dollars in thousands)		9/30/2020				6/30/2020				3/31/2020				12/31/2019				12/31/2018				12/31/2017				12/31/2016
Classified loans
Substandard		$	20,602			$	21,420			$	27,151			$	26,863			$	32,226			$	40,306			$	30,463
Doubtful		—				—				—				—				—				—				137
Total classified loans		20,602				21,420				27,151				26,863				32,226				40,306				30,600
Special mention loans		2,440				1,025				1,045				—				—				96				—
Total classified and special mention loans		$	23,042			$	22,445			$	28,196			$	26,863			$	32,226			$	40,402			$	30,600
Classified loans		$	20,602			$	21,420			$	27,151			$	26,863			$	32,226			$	40,306			$	30,600
Classified securities		—				—				—				—				482				651				883
Other real estate owned		3,998				3,695				6,338				7,773				8,111				9,341				7,763
Total classified assets		$	24,600			$	25,115			$	33,489			$	34,636			$	40,819			$	50,298			$	39,246
Total classified assets as a percentage of total assets		1.15		%		1.20		%		1.83		%		1.93		%		2.42		%		3.58		%		2.94		%
Total classified assets as a percentage of Risk Based Capital		11.89		%		12.49		%		17.00		%		12.21		%		21.54		%		32.10		%		26.13		%

SUMMARY OF DEPOSITS

		September 30, 2020							June 30, 2020							March 31, 2020							December 31, 2019							September 30, 2019
(dollars in thousands)		Balance				%			Balance				%			Balance				%			Balance				%			Balance				%
Noninterest-bearing demand		$	360,839			20.28	%		$	356,196			21.32	%		$	254,114			16.80	%		$	241,174			15.95	%		$	243,425			15.60	%
Interest-bearing:
Demand		635,176				35.69	%		547,639				32.79	%		517,069				34.19	%		523,802				34.65	%		539,512				34.59	%
Money market deposits		329,617				18.52	%		314,781				18.85	%		281,656				18.62	%		283,438				18.75	%		274,743				17.61	%
Savings		90,514				5.09	%		85,257				5.10	%		73,874				4.88	%		69,254				4.58	%		67,544				4.33	%
Certificates of deposit		363,460				20.42	%		366,491				21.94	%		385,876				25.51	%		394,169				26.07	%		434,736				27.87	%
Total interest-bearing		1,418,767				79.72	%		1,314,168				78.68	%		1,258,475				83.20	%		1,270,663				84.05	%		1,316,535				84.40	%
Total Deposits		$	1,779,606			100.00	%		$	1,670,364			100.00	%		$	1,512,589			100.00	%		$	1,511,837			100.00	%		$	1,559,960			100.00	%
Transaction accounts		$	1,416,146			79.58	%		$	1,303,873			78.06	%		$	1,126,713			74.49	%		$	1,117,668			73.93	%		$	1,125,224			72.13	%

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¹ Portfolio loans include all loan portfolios except the U.S. SBA PPP loan portfolio

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