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

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

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Second Quarter 2021 Highlights

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

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

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

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

Management Commentary

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

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

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

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

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

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

Results of Operations

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


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

Net Interest Income

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

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

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

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

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

Noninterest Income

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

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

Noninterest Expense

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

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

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

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

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

Income Tax Expense

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

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

Balance Sheet

Assets

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

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

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

Funding

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

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

Stockholders' Equity and Regulatory Capital

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

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

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

Asset Quality

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

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

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

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

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

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

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

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

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

Non-accrual loans decreased $4.4 million from $18.2 million at December 31, 2020 to $13.8 million at June 30, 2021. Non-accrual loans of $8.0 million (58%) were current with all payments of principal and interest with specific reserves of $42,000 at June 30, 2021. Delinquent non-accrual loans were $5.8 million (42%) with specific reserves of $0.7 million at June 30, 2021. The OREO balance decreased $1.6 million from $3.1 million at December 31, 2020 to $1.5 million at June 30, 2021.

About The Community Financial Corporation - Headquartered in Waldorf, MD, The Community Financial Corporation is the bank holding company for Community Bank of the Chesapeake, a full-service commercial bank with assets of approximately $2.2 billion. Through its branch offices and commercial lending centers, Community Bank of the Chesapeake offers a broad range of financial products and services to individuals and businesses. The Company’s branches are located at its main office in Waldorf, Maryland, and branch offices in Bryans Road, Dunkirk, Leonardtown, La Plata, Charlotte Hall, Prince Frederick, Lusby and California, Maryland; and downtown Fredericksburg, Virginia. More information about Community Bank of the Chesapeake can be found at www.cbtc.com.

Use of non-GAAP Financial Measures - Statements included in this press release include non-GAAP financial measures and should be read along with the accompanying tables, which provide a reconciliation of non-GAAP financial measures to GAAP financial measures. The Company’s management uses these non-GAAP financial measures, and believes that non-GAAP financial measures provide additional useful information that allows readers to evaluate the ongoing performance of the Company. Non-GAAP financial measures should not be considered as an alternative to any measure of performance or financial condition as promulgated under GAAP, and investors should consider the Company’s performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company. Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the results or financial condition as reported under GAAP.

Forward-looking Statements - This news release contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements can generally be identified by the fact that they do not relate strictly to historical or current facts. They often include words like “believe,” “expect,” “anticipate,” “estimate” and “intend” or future or conditional verbs such as “will,” “would,” “should,” “could” or “may.” Statements in this release that are not strictly historical are forward-looking and are based upon current expectations that may differ materially from actual results. These forward-looking statements include, without limitation, those relating to the Company’s and the Bank’s future growth and management’s outlook or expectations for revenue, assets, asset quality, profitability, business prospects, net interest margin, non-interest revenue, allowance for loan losses, the level of credit losses from lending, liquidity levels, capital levels, or other future financial or business performance strategies or expectations, and any statements of the plans and objectives of management for future operations products or services, including the expected benefits from, and/or the execution of integration plans relating to any acquisition we have undertaking or that we undertake in the future; plans and cost savings regarding branch closings or consolidation; any statement of expectation or belief; projections related to certain financial metrics; and any statement of assumptions underlying the foregoing. These forward-looking statements express management’s current expectations or forecasts of future events, results and conditions, and by their nature are subject to and involve risks and uncertainties that could cause actual results to differ materially from those anticipated by the statements made herein. Factors that might cause actual results to differ materially from those made in such statements include, but are not limited to: risks, uncertainties and other factors relating to the COVID-19 pandemic (including the length of time that the pandemic continues, the ability of states and local governments to successfully implement the lifting of restrictions on movement and the potential imposition of further restrictions on movement and travel in the future, the effect of the pandemic on the general economy and on the businesses of our borrowers and their ability to make payments on their obligations; the remedial actions and stimulus measures adopted by federal, state and local governments, and the inability of employees to work due to illness, quarantine, or government mandates); the synergies and other expected financial benefits from any acquisition that we have undertaken or may undertake in the future; may or may not be realized within the expected time frames; changes in the Company's or the Bank's strategy, costs or difficulties related to integration matters might be greater than expected; availability of and costs associated with obtaining adequate and timely sources of liquidity; the ability to maintain credit quality; general economic trends; changes in interest rates; loss of deposits and loan demand to other financial institutions; substantial changes in financial markets; changes in real estate value and the real estate market; regulatory changes; the impact of government shutdowns or sequestration; the possibility of unforeseen events affecting the industry generally; the uncertainties associated with newly developed or acquired operations; the outcome of pending or threatened litigation, or of matters before regulatory agencies, whether currently existing or commencing in the future; market disruptions and other effects of terrorist activities; and the matters described in “Item 1A Risk Factors” in the Company’s Annual Report on Form 10-K for the Year Ended December 31, 2020, and in its other Reports filed with the Securities and Exchange Commission (the “SEC”). The Company’s forward-looking statements may also be subject to other risks and uncertainties, including those that it may discuss elsewhere in this news release or in its filings with the SEC, accessible on the SEC’s Web site at www.sec.gov. The Company undertakes no obligation to update these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unforeseen events, except as required under the rules and regulations of the SEC.

Data is unaudited as of June 30, 2021. This selected information should be read in conjunction with the financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020.

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


SUPPLEMENTAL QUARTERLY FINANCIAL DATA
CONSOLIDATED INCOME STATEMENT (UNAUDITED)

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


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

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


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

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

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

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

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

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

(4) Non-accrual loans include all loans that are 90 days or more delinquent and loans that are non-accrual due to the operating results or cash flows of a customer. Non-accrual loans can include loans that are current with all loan payments. At June 30, 2021 and December 31, 2020, the Company had current non-accrual loans of $8.0 million and $6.3 million, respectively.


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

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

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

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

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

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


SUPPLEMENTAL YEAR TO DATE FINANCIAL DATA (UNAUDITED)

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

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


RECONCILIATION OF NON-GAAP MEASURES (UNAUDITED)

Reconciliation of US GAAP total assets, common equity, common equity to assets and book value to Non-GAAP tangible assets, tangible common equity, tangible common equity to tangible assets and tangible book value.

This press release, including the accompanying financial statement tables, contains financial information determined by methods other than in accordance with generally accepted accounting principles, or GAAP. This financial information includes certain performance measures, which exclude intangible assets. These non-GAAP measures are included because the Company believes they may provide useful supplemental information for evaluating the underlying performance trends of the Company.

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


RECONCILIATION OF NON-GAAP MEASURES (UNAUDITED)

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

Management believes that PTPP income, which reflects the Company's profitability before income taxes and loan loss provisions, allows investors to better assess the Company's operating income and expenses in relation to the Company's core operating revenue by removing the volatility that is associated with credit provisions and different state income tax rates for comparable institutions. ROATCE is computed by dividing net earnings applicable to common shareholders by average tangible common shareholders' equity. Management believes that ROATCE is meaningful because it measures the performance of a business consistently, whether acquired or internally developed. ROATCE is a non-GAAP measure and may not be comparable to similar non-GAAP measures used by other companies. Management also believes that during a crisis such as the COVID-19 pandemic, this information is useful as the impact of the pandemic on the loan loss provisions of various institutions will likely vary based on the geography of the communities served by a particular institution.

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


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


AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME (UNAUDITED)

    For the Three Months Ended June 30,   For the Three Months Ended
    2021   2020   June 30, 2021   March 31, 2021
(dollars in thousands)   Average Balance   Interest   Average Yield/Cost   Average Balance   Interest   Average Yield/Cost   Average Balance   Interest   Average Yield/Cost   Average Balance   Interest   Average Yield/Cost
Assets                                                
Interest-earning assets:                                                
Commercial real estate   $ 1,089,781      $ 10,953      4.02  %   $ 981,188      $ 10,537      4.30  %   $ 1,089,781      $ 10,953      4.02  %   $ 1,059,803      $ 10,696      4.04  %
Residential first mortgages   109,296      838      3.07  %   168,958      1,397      3.31  %   109,296      838      3.07  %   124,984      914      2.93  %
Residential rentals   139,080      1,410      4.06  %   131,018      1,521      4.64  %   139,080      1,410      4.06  %   139,220      1,445      4.15  %
Construction and land development   38,315      425      4.44  %   39,856      445      4.47  %   38,315      425      4.44  %   36,091      402      4.46  %
Home equity and second mortgages   29,061      251      3.45  %   35,135      318      3.62  %   29,061      251      3.45  %   29,272      248      3.39  %
Commercial and equipment loans   104,117      1,108      4.26  %   131,186      1,554      4.74  %   104,117      1,108      4.26  %   105,284      1,070      4.07  %
U.S. SBA PPP loans   104,426      1,318      5.05  %   90,132      493      2.19  %   104,426      1,318      5.05  %   116,003      1,802      6.21  %
Consumer loans   1,425      17      4.77  %   1,119      12      4.29  %   1,425      17      4.77  %   1,320      15      4.55  %
Allowance for loan losses   (18,265 )   —      0.00  %   (15,597 )   —      0.00  %   (18,265 )   —      0.00  %   (19,614 )   —      0.00  %
Loan portfolio (1)   $ 1,597,236      $ 16,320      4.09  %   $ 1,562,995      $ 16,277      4.17  %   $ 1,597,236      $ 16,320      4.09  %   $ 1,592,363      $ 16,592      4.17  %
Taxable investment securities   276,019      1,020      1.48  %   211,917      1,248      2.36  %   276,019      1,020      1.48  %   229,810      951      1.66  %
Nontaxable investment securities   15,559      81      2.08  %   12,586      93      2.96  %   15,559      81      2.08  %   20,841      114      2.19  %
Interest-bearing deposits in other banks   28,844      13      0.18  %   17,384      11      0.25  %   28,844      13      0.18  %   25,064      14      0.22  %
Federal funds sold   34,778      10      0.12  %   15,893          0.23  %   34,778      10      0.12  %   18,721          0.15  %
Total interest-earning assets   1,952,436      17,444      3.57  %   1,820,775      17,638      3.87  %   1,952,436      17,444      3.57  %   1,886,799      17,678      3.75  %
Cash and cash equivalents   65,897              73,206              65,897              82,669           
Goodwill   10,835              10,835              10,835              10,835           
Core deposit intangible   1,350              1,909              1,350              1,481           
Other assets   86,421              88,827              86,421              88,791           
Total Assets   $ 2,116,939              $ 1,995,552              $ 2,116,939              $ 2,070,575           
                                                 
Liabilities and Stockholders' Equity                                                
Noninterest-bearing demand deposits   $ 406,166      $ —      0.00  %   $ 332,642      $ —      0.00  %   $ 406,166      $ —      0.00  %   $ 381,059      $ —      0.00  %
Interest-bearing deposits                                                
Savings   105,814      13      0.05  %   81,019      30      0.15  %   105,814      13      0.05  %   101,782      13      0.05  %
Interest-bearing demand and money market accounts   977,201      185      0.08  %   816,836      481      0.24  %   977,201      185      0.08  %   952,554      195      0.08  %
Certificates of deposit   344,533      442      0.51  %   373,129      1,426      1.53  %   344,533      442      0.51  %   351,365      594      0.68  %
Total interest-bearing deposits   1,427,548      640      0.18  %   1,270,984      1,937      0.61  %   1,427,548      640      0.18  %   1,405,701      802      0.23  %
Total deposits   1,833,714      640      0.14  %   1,603,626      1,937      0.48  %   1,833,714      640      0.14  %   1,786,760      802      0.18  %
Long-term debt   27,273      43      0.63  %   67,342      276      1.64  %   27,273      43      0.63  %   27,291      41      0.60  %
Short-term debt   —      —      0.00  %   13,077      28      0.86  %   —      —      0.00  %   —      —      0.00  %
PPPLF advance   —      —      0.00  %   87,332      76      0.35  %   —      —      0.00  %   —      —      0.00  %
Subordinated notes   19,473      251      5.16  %   —      —      0.00  %   19,473      251      5.16  %   19,490      251      5.15  %
Guaranteed preferred beneficial interest in junior subordinated debentures   12,000      75      2.50  %   12,000      97      3.23  %   12,000      75      2.50  %   12,000      75      2.50  %
Total debt   58,746      369      2.51  %   179,751      477      1.06  %   58,746      369      2.51  %   58,781      367      2.50  %
Interest-bearing liabilities   1,486,294      1,009      0.27  %   1,450,735      2,414      0.67  %   1,486,294      1,009      0.27  %   1,464,482      1,169      0.32  %
Total funds   1,892,460      1,009      0.21  %   1,783,377      2,414      0.54  %   1,892,460      1,009      0.21  %   1,845,541      1,169      0.25  %
Other liabilities   20,586              22,285              20,586              23,910           
Stockholders' equity   203,893              189,890              203,893              201,124           
Total Liabilities and Stockholders' Equity   $ 2,116,939              $ 1,995,552              $ 2,116,939              $ 2,070,575           
                                                 
Net interest income       $ 16,435              $ 15,224              $ 16,435              $ 16,509       
                                                 
Interest rate spread           3.30  %           3.21  %           3.30  %           3.43  %
Net yield on interest-earning assets           3.37  %           3.34  %           3.37  %           3.50  %
Average interest-earning assets to average interest-bearing liabilities           131.36  %           125.51  %           131.36  %           128.84  %
Average loans to average deposits           87.10  %           97.47  %           87.10  %           89.12  %
Average transaction deposits to total average deposits **           81.21  %           76.73  %           81.21  %           80.34  %
                                                 
Cost of funds           0.21  %           0.54  %           0.21  %           0.25  %
Cost of deposits           0.14  %           0.48  %           0.14  %           0.18  %
Cost of debt           2.51  %           1.06  %           2.51  %           2.50  %

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

** Transaction deposits exclude time deposits.


AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME (UNAUDITED)

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

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

** Transaction deposits exclude time deposits.


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

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


END OF PERIOD CONTRACTUAL RATES (UNAUDITED)

The following table is based on contractual interest rates and does not include the amortization of deferred costs and fees or assumptions regarding non-accrual interest: 

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


ALLOWANCE FOR LOAN LOSSES (UNAUDITED)

(dollars in thousands)

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

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

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

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


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


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


CLASSIFIED AND SPECIAL MENTION ASSETS (UNAUDITED)

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

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


SUMMARY OF DEPOSITS (UNAUDITED)

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


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