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The Community Financial Corporation Announces Results Of Operations For Fourth Quarter Of 2015
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PR Newswire
WALDORF, Md., Jan. 26, 2016
WALDORF, Md., Jan. 26, 2016 /PRNewswire/ -- The Community Financial Corporation (NASDAQ: TCFC) (the "Company"), the holding company for Community Bank of the Chesapeake (the "Bank"), reported its results of operations for the three months ended and year ended December 31, 2015. Consolidated net income available to common shareholders of $1.5 million for the three months ended December 31, 2015 increased $33,000 compared to the three months ended December 31, 2014. Earnings per common share (diluted) at $0.33 increased $0.01 from $0.32 per common share (diluted) for the three months ended December 31, 2014. Consolidated net income available to common shareholders of $6.3 million for the year ended December 31, 2015 increased $30,000 compared to the year ended December 31, 2014. Earnings per common share (diluted) at $1.35 were the same for the comparable annual periods.
While overall loan growth for 2015 was below expectations at 5.4%, commercial real estate lending, our primary loan product line, grew $52.4 million or 9.3% to $613.5 million at December 31, 2015 compared to $561.1 million at December 31, 2014. The Company expects a solid first quarter of 2016 with a strong pipeline of loans scheduled to close and greater than $30.0 million in unfunded lines for commercial construction loans with scheduled drawdowns during the first six months of 2016. In addition, the Company's residential lending portfolio increased during the fourth quarter, growing $9.5 million from $140.5 million at September 30, 2015 to $150.0 million at December 31, 2015. The Company exited the residential mortgage origination line of business during the second quarter of this year and the portfolio decreased $12.4 million between December 2014 and September 2015. The Company has since established other third-party residential loan sources, funding more loans during the fourth quarter. The Company expects the residential loan portfolio to grow during 2016.
During 2015, the Company made a number of strategic decisions to meet our longer-term objectives of increased profitability and increase shareholder value. The Company continued to execute its plans to improve asset quality and to increase transaction deposits. The following is a summary of progress made during 2015:
- Improved asset quality – The Company has been working in an increasingly assertive manner to reduce its classified assets and will continue to move non-performing or substandard credits that are not likely to become performing or passing credits in a reasonable timeframe off the balance sheet. The Company is encouraging existing classified customers to obtain financing with other lenders or enforcing its contractual rights. Management believes this strategy is in the best long-term interest of the Company.
As of December 31, 2015 total loan delinquency at 1.27% of loans is in line with the Company's peers. In addition, total classified assets, consisting primarily of classified loans and OREO, were $43.3 million at December 31, 2015, a reduction of $10.7 million, or approximately 19.8% from $54.0 million as of December 31, 2014. Total classified assets as a percentage of assets and risk-based capital decreased from 5.0% and 39.3%, respectively, at December 31, 2014 to 3.8% and 30.2%, respectively, at December 31, 2015. During the fourth quarter of 2015, the Company reduced its classified loans by $3.5 million. The majority of the fourth quarter reduction in classified loans resulted in a transfer to OREO of $2.7 million of developed real estate. The Company is optimistic that these properties will be sold in the near term based on the current valuation, the existing market and tenant occupancy. - Increased transaction deposits – The Company continued to increase transaction deposits to compliment interest-earning asset growth. Our efforts center on providing products and services that serve small and midsize businesses and municipal customers. This has been the primary reason for the decrease in the Company's funding costs. Since 2011, our deposit costs have decreased 96 basis points from 1.43% for the year ended December 31, 2011 to 0.47% for the three months ended December 31, 2015. Average transaction deposits for the year ended December 31, 2015 increased $65.4 million or 15.5% to $488.2 million compared to the prior year. Transaction deposits have increased from 44.9% of total deposits at December 31, 2011 to 58.6% of total deposits at December 31, 2015. The Company will use time deposits and wholesale funding to supplement interest-earning asset growth as needed.
- Controlled the growth of expenses – The Company's noninterest expenses for 2015, excluding OREO charges and an insurance settlement claim adjustment, were $27.2 million which represents a $1.3 million or 5.1% increase over the comparable $25.9 million for the year ended December 31, 2014. With these adjustments, noninterest expense as a percentage of average assets decreased three basis points from 2.52% for the year ended December 31, 2014 to 2.49% for the year ended December 31, 2015.
Employee compensation and other operating expenses have grown over the last several years due to the Company's expanding footprint and the increased cost of compliance and regulation. The Company controlled the growth of salary and benefit costs in 2015 with the remodeling of our retail centers and the restructuring of our branch organization. Additionally, management realigned incentives to more closely correlate with Company performance. - Invested in infrastructure – During 2015, the Company invested in software and professional services to support the Company's continued growth. These investments included capabilities to manage enterprise risks, interest rate risks, vendor risk management, customer information risks and cyber security risks.
- Exited underwriting residential mortgages and established third-party relationships to purchase residential mortgages - The Company exited the residential mortgage origination line of business in April 2015 and has established third party sources to fund its residential whole loan portfolio. The third party sources will allow the Company to maintain a well-diversified residential portfolio while addressing the credit needs of the communities in its footprint.
- Sold an unprofitable branch - The Company agreed to sell its King George, Virginia branch building and equipment to InFirst Federal Credit Union. The transaction is expected to close in the first quarter of 2016. Operating results for the year ended December 31, 2015 reflect a one-time $426,000 pre-tax provision for the loss on the transaction with a $0.05 impact to earnings per share. The elimination of the estimated direct annual operating costs of the King George branch will have an immediate accretive impact on earnings per share in 2016 with the earned back period of less than 10 months.
- Executed plans to open a branch in downtown Fredericksburg in early 2016 - The Company's second branch in Fredericksburg is scheduled to open in downtown during the first quarter of 2016. The Company believes that this second branch will enhance its deposit gathering in this market and complement the strong loan growth experienced in the Fredericksburg market during 2014 and 2015.
- The Company proactively refinanced preferred stock issued under the Small Business Lending Fund ("SBLF") program - On February 6, 2015 the Company issued $23.0 million of unsecured 6.25% fixed to floating rate subordinated notes due 2025 ("subordinated notes"). On February 13, 2015, the Company used proceeds of the offering to redeem all $20 million of the Company's outstanding preferred stock issued under the Small Business Lending Fund ("SBLF") program. The subordinated notes qualified as tier 2 regulatory capital and replaced SBLF tier 1 capital. The Company's decided to issue the subordinated notes during 2015 because of the scheduled increase in the after-tax SBLF dividend rate to 9% in March 2016. The short-term impact for 2016 was increased interest expense of $1.3 million; however, the Company believed it was prudent to issue the subordinated notes before the SBLF dividends were scheduled to increase.
Operations – Three Months Ended December 31, 2015 compared to Three Months Ended December 31, 2014
Consolidated net income available to common shareholders of $1.5 million for the three months ended December 31, 2015 increased $33,000 compared to the three months ended December 31, 2014. This is attributable to increased net interest income of $295,000, a reduction in the provision for loan losses of $1.1 million and decreased preferred stock dividends of $50,000. These increases to net income were offset by increased noninterest expense of $904,000, decreased noninterest income of $316,000 and increased income tax expense of $232,000.
Net interest income increased to $9.3 million for the three months ended December 31, 2015 compared to $9.1 million for the three months ended December 31, 2014. The net interest margin was 3.61% for the three months ended December 31, 2015, a 12 basis point decrease from 3.73% for the three months ended December 31, 2014. The decrease in net interest margin was largely the result of lower yields on loans and additional interest expense of the subordinated notes issued during the first quarter of 2015.
Net interest margin at 3.61% for the three months ended December 31, 2015 increased six basis points from 3.55% for the three months ended September 30, 2015. The increase in net interest margin from the prior quarter was the result of higher yields on investments, a lower cost of debt due to the maturity of some long-term debt and a small increase in net interest income during the fourth quarter due to the return of several loans from nonaccrual to performing status. Net interest income was positively impacted from the increase in the average-balance of interest-earning assets and a reduction in the cost of funds compared to last quarter.
Interest and dividend income increased by $545,000 to $11.2 million for the three months ended December 31, 2015 compared to $10.7 million for the three months ended December 31, 2014, primarily due to increased income from the growth in the average balance of loans and investments and increased investment yields. Interest and dividend income on loans increased $598,000 due to growth of $50.7 million in the average balance of loans from $838.1 million for the three months ended December 31, 2014 to $888.8 million for the three months ended December 31, 2015. Interest and dividend income on investments increased $138,000 during the fourth quarter of 2015 compared to the same period in the prior year as average interest-earning investment balances increased $15.0 million and average yields increased from 1.71% to 1.91%. Average loan yields declined nine basis points from 4.82% for the three months ended December 31, 2014 to 4.73% for the three months ended December 31, 2015, which resulted in a decrease in interest and dividend income of $191,000.
Interest expense increased $250,000 to $1.9 million for the three months ended December 31, 2015 compared to the three months ended December 31, 2014, due primarily to an increase in interest expense related to the subordinated notes issued during the first quarter of 2015. The issuance of the subordinated notes was the primary reason the average cost of total interest-bearing liabilities increased six basis points from 0.79% for the fourth quarter of 2014 to 0.85% for the fourth quarter of 2015. During the three months ended December 31, 2015, interest expense increased $359,000 due to the subordinated note issuance, and $44,000 due to increased average balances of interest-bearing transaction deposit accounts and short-term debt compared to the same quarter of 2014. Additionally, interest expense increased $22,000 on money market accounts, as rates increased modestly from 0.26% to 0.29%. The average rate paid on debt, which includes long-term debt, trust preferred junior subordinated debentures ("TRUPS"), subordinated notes, and short-term borrowings, increased from 2.35% for the three months ended December 31, 2014 to 2.78% for the comparable period in 2015. The increases to interest expense were partially offset by reductions of $106,000 due to lower average balances of long-term debt and time deposits and $73,000 due to decreases in rates paid on time deposits and debt.
The Company continued to make progress in reducing overall deposit costs by increasing transaction deposits as a percentage of overall deposits. Average transaction accounts as a percentage of average total deposits increased from 53.2% for the three months ended December 31, 2014 to 57.9% for the three months ended December 31, 2015. Deposit costs decreased five basis points from 0.52% for the three months ended December 31, 2014 to 0.47% for the three months ended December 31, 2015. Average transaction deposits, which include savings, money market, interest-bearing demand and non-interest bearing demand accounts, for the three months ended December 31, 2015 increased $70.7 million or 15.9% to $515.4 million compared to $444.7 million for the comparable period in 2014. The increase in average transaction deposits included growth in average noninterest bearing demand deposits of $18.9 million from $111.9 million for the three months ended December 31, 2014 to $130.8 million for the three months ended December 31, 2015. The Company is less dependent on time deposits for funding. In the current year, the progress in continuing to add transaction deposits has mitigated some of the impact of the increased interest expense associated with the subordinated notes.
The provision for loan losses decreased $1.1 million to $362,000 for the three months ended December 31, 2015 compared to $1.5 million for the three months ended December 31, 2014. Net charge-offs for the quarter decreased $1.1 million from $1.3 million for the three months ended December 31, 2014 to $197,000 for the three months ended December 31, 2015. Improvements to baseline charge-off factors for the periods used to evaluate the adequacy of the allowance as well as improvements in other qualitative factors, such as reductions in classified assets resulted in a lower provision for loan losses for the comparable periods. During the fourth quarter of 2014, the Company granted concessions on two loan relationships, each of which was classified as substandard. These concessions resulted in charge-offs of $1.3 million during the fourth quarter of 2014 and classification of the relationships as troubled debt restructurings ("TDRs"). At December 31, 2015 and 2014 the carrying values of these loans were $9.5 million and $10.1 million, respectively.
Noninterest income decreased by $316,000 to $909,000 for the three months ended December 31, 2015 compared to $1.2 million for the three months ended December 31, 2014. Noninterest income decreased primarily due to a gain on the sale of OREO property of $262,000 for the three months ended December 31, 2014 compared to none for the comparable period in 2015. Additionally there were no gains on the sale of residential loans held for sale in the fourth quarter of 2015 compared to a $145,000 gain in the comparable period of 2014. The reduction in gains on loans held for sale reflected the Company's exit from residential loan originations during the second quarter of 2015. There was a moderate increase in the fourth quarter of 2015 of service charge and miscellaneous fee income compared to the prior year.
Noninterest expense at $7.6 million for the fourth quarter of 2015 increased $525,000 from the third quarter 2015 noninterest expense of $7.0 million. The current quarter increase was primarily the result of OREO expenses of $377,000 and a $200,000 reduction in an insurance settlement claim receivable. The Company's average noninterest expense per quarter, excluding OREO charges and the settlement claim, were $6.8 million per quarter for the year ended December 31, 2015. For the three months ended December 31, 2015, noninterest expense increased 13.6%, or $904,000, to $7.6 million from $6.7 million for the comparable period in 2014. The Company's 2015 total growth in salary and benefit costs was 3.2%. During 2015, the Company controlled the growth of salary and benefit costs by restructuring our branch organization and better aligning incentives with Company performance. The Company's noninterest expense as a percentage of average assets for the three months ended December 31, 2015 and 2014 were 2.70% and 2.53%, respectively. The following is a summary breakdown of noninterest expense:
| | | Three Months Ended December 31, | | | | | ||
| (dollars in thousands) | | 2015 | | 2014 | | $ Change | | % Change |
| Compensation and Benefits | | $ 4,148 | | $ 3,891 | | $ 257 | | 6.6% |
| OREO Valuation Allowance and Expenses | | 377 | | 54 | | 323 | | 598.1% |
| Other Operating Expenses | | 3,031 | | 2,707 | | 324 | | 12.0% |
| Total Noninterest Expense | | $ 7,556 | | $ 6,652 | | $ 904 | | 13.6% |
Operations – Year Ended December 31, 2015 compared to Year Ended December 31, 2014
Consolidated net income available to common shareholders of $6.3 million for the year ended December 31, 2015 increased $30,000 compared to the year ended December 31, 2014. This is attributable to increased net interest income of $1.5 million, a reduction in the provision for loan losses of $1.2 million, decreased income tax expense of $143,000 and decreased preferred stock dividends of $177,000. These increases to net income were offset by increased noninterest expense of $2.2 million and decreased noninterest income of $794,000.
Net interest income increased to $36.5 million for the year ended December 31, 2015 compared to $35.1 million for the year ended December 31, 2014. The net interest margin was 3.60% for the year ended December 31, 2015, an eight basis point decrease from 3.68% for the year ended December 31, 2014. The decrease in net interest margin was largely the result of additional interest expense related to the subordinated notes issued during the first quarter of 2015.
Interest and dividend income increased by $2.1 million to $43.9 million for the year ended December 31, 2015 compared to $41.8 million for the year ended December 31, 2014, primarily due to increased income from the growth in the average balance of loans. Interest and dividend income on loans increased $2.6 million due to growth of $54.8 million in the average balance of loans from $819.4 million for the year ended December 31, 2014 to $874.2 million for the year ended December 31, 2015. Interest and dividend income on investments increased $203,000 during 2015 compared to the prior year as average interest-earning investment balances increased $4.7 million and average yields increased from 1.70% to 1.79%. These increases to interest income were partially offset by decreased income from reduced yields on loans. Average loan yields declined nine basis points from 4.82% for the year ended December 31, 2014 to 4.73% for the year ended December 31, 2015, which resulted in a decrease in interest income of $684,000.
Interest expense increased $647,000 to $7.3 million for the year ended December 31, 2015 compared to the year ended December 31, 2014 due primarily to an increase in interest expense related to the subordinated notes issued during the first quarter of 2015. The average cost of total interest-bearing liabilities was 0.85% for the year ended December 31, 2015 compared to 0.83% for the year ended December 31, 2014. During the year ended December 31, 2015, interest expense increased $1.3 million due to the subordinated note issuance and larger short-term debt balances and $119,000 due to increased average balances of interest-bearing transaction deposit accounts compared to the same twelve months of 2014. Additionally, interest expense increased $35,000 on money market accounts, as rates increased modestly from 0.27% to 0.28%. The increases to interest expense were partially offset by reductions of $228,000 due to lower average balances of long-term debt and time deposits and $594,000 due to net decreases in rates paid on time deposits and long-term debt. The average rate paid on debt, which includes long-term debt, TRUPS, subordinated notes, and short-term borrowings, increased from 2.32% for the year ended December 31, 2014 to 2.77% for the year ended December 31, 2015.
The Company continued to make progress in reducing overall deposit costs by increasing transaction deposits as a percentage of overall deposits. Average transaction accounts as a percentage of average deposits increased from 52.0% for the year ended December 31, 2014 to 56.4% for the year ended December 31, 2015. Deposit costs declined eight basis points from 0.56% for the year ended December 31, 2014 to 0.48% for the year ended December 31, 2015. Average transaction deposits for the year ended December 31, 2015 increased $65.4 million or 15.5% to $488.2 million compared to $422.9 million for the comparable period in 2014. The increase in average transaction deposits included growth in average noninterest bearing demand deposits of $19.7 million, or 19.6%, from $100.8 million for the year ended December 31, 2014 to $120.5 million for the year ended December 31, 2015. The Company is less dependent on time deposits for funding. In the current year, the progress in continuing to add transaction deposits has mitigated some of the impact of the increased interest expense associated with the subordinated notes.
The provision for loan losses decreased $1.2 million to $1.4 million for the year ended December 31, 2015 compared to $2.6 million for the year ended December 31, 2014. Net charge-offs decreased $936,000 from $2.3 million for the year ended December 31, 2014 to $1.4 million for the year ended December 31, 2015. The effects of these charge-offs on the provision were mitigated by improvements to baseline charge-off factors for the periods used to evaluate the adequacy of the allowance as well as improvements in other qualitative factors, such as reductions in classified assets.
Noninterest income decreased by $794,000 to $3.3 million for the year ended December 31, 2015 compared to $4.1 million for the year ended December 31, 2014. Noninterest income decreased primarily due to a decrease in income from residential loan sales of $389,000, a reduction in OREO gains on disposals of $342,000 and the one-time expense to record a $426,000 provision for the loss on the sale of the King George, Virginia branch building and equipment. Gains on loans held for sale were $104,000 for the year ended December 31, 2015 compared to $493,000 for the year ended December 31, 2014. The reduction in loans held for sale reflected the Company's exit from residential loan originations during the second quarter of 2015 and there were no loans sales during the last six months of 2015. The Company also experienced a decrease in revenues of $56,000 for the year ended December 31, 2015 compared to the prior year from miscellaneous fees and investment securities transactions. These decreases were partially offset by increased noninterest income in service charges of $275,000 and BOLI of $144,000. The Company made an additional investment of $7.0 million in BOLI during the third quarter of 2014.
For the year ended December 31, 2015, noninterest expense increased 8.3%, or $2.2 million, to $28.4 million from $26.2 million for the year ended December 31, 2014. The Company's noninterest expense of $28.4 million for the year ended December 31, 2015 included OREO expenses of $1.1 million and a $200,000 reduction in an insurance settlement claim receivable. The Company's noninterest expense for 2015, excluding OREO charges and the insurance settlement claim, was $27.2 million which represents a $1.3 million or 5.1% increase over the comparable $25.9 million for the year end December 31, 2014. Noninterest expense as a percentage of average assets for the year ended December 31, 2015 was 2.60% compared to 2.56% for the year ended December 31, 2014. The Company's ratio decreased three basis points during 2015, excluding OREO charges and the insurance settlement claim adjustment, to 2.49% for the year ended December 31, 2015 compared to 2.52% for the year ended December 31, 2014. Compensation and benefits have increased 3.2% or $515,000 compared to the same period in the prior year. The Company has controlled the growth of salary and benefit costs by restructuring our branch organization and better aligning incentives with Company performance. The Company is continuing to work to slow the growth of noninterest expenses as a percentage of average assets based on current expansion plans and a greater ability to increase efficiencies as a result of our larger asset size.
The Company's efficiency ratio for the year ended December 31, 2015 was 71.35% compared to 67.00% for the year ended December 31, 2014. Excluding the impact of the one-time loss provision on the sale of the King George branch, OREO expenses, OREO gains and losses and the insurance claim, the adjusted efficiency ratio for the years ended December 31, 2015 and 2014 was 67.44% and 66.57%, respectively. The following is a summary breakdown of noninterest expense:
| | | Years Ended December 31, | | | | | ||
| (dollars in thousands) | | 2015 | | 2014 | | $ Change | | % Change |
| Compensation and Benefits | | $ 16,366 | | $ 15,851 | | $ 515 | | 3.2% |
| OREO Valuation Allowance and Expenses | | 1,059 | | 386 | | 673 | | 174.4% |
| Other Operating Expenses | | 10,993 | | 9,998 | | 995 | | 10.0% |
| Total Noninterest Expense | | $ 28,418 | | $ 26,235 | | $ 2,183 | | 8.3% |
Financial Condition at December 31, 2015 compared to December 31, 2014
Total assets at December 31, 2015 of $1.14 billion increased $60.5 million compared to total assets of $1.08 billion at December 31, 2014. The increase in total assets was primarily attributable to growth in securities and loans partially offset by declines in cash. Net loans increased $46.8 million from $862.4 million at December 31, 2014 to $909.2 million at December 31, 2015, due primarily to increases in loans for commercial real estate. The following is a breakdown of the Company's loan portfolio at December 31, 2015 and December 31, 2014:
| (dollars in thousands) | | December 31, 2015 | | % | | December 31, 2014 | | % |
| | | | | | | | | |
| Commercial real estate | | $ 613,479 | | 66.76% | | $ 561,080 | | 64.34% |
| Residential first mortgages | | 149,967 | | 16.32% | | 152,837 | | 17.52% |
| Construction and land development | | 36,189 | | 3.94% Werbung Mehr Nachrichten zur TRI-COUNTY FINANCIAL Aktie kostenlos abonnieren
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