The Community Financial Corporation Reports Record EPS of $1.21 and ROAA of 1.19% for the Second Quarter 2022

WALDORF, Md., July 25, 2022 (GLOBE NEWSWIRE) — The Community Financial Corporation (NASDAQ: TCFC) (the “Company”), the holding company for Community Bank of the Chesapeake (the “Bank”), today reported record net income for the three months ended June 30, 2022 of $6.8 million, or $1.21 per diluted common share. This compares to net income of $6.3 million, or $1.10 per diluted common share for the first quarter of 2022, and net income of $6.4 million or $1.10 per diluted common share for the quarter ended June 30, 2021. The Company reported record net income for the six months ended June 30, 2022 of $13.1 million or diluted earnings per share of $2.31 compared to net income for the comparable 2021 period of $12.7 million or diluted earnings per share of $2.17.

Second Quarter 2022 Highlights

• Record Net Income: Net income totaled $6.8 million for the quarter ended June 30, 2022, or $1.21 per diluted common share compared to net income of $6.4 million or $1.10 per diluted common share for the quarter ended June 30, 2021 and $6.3 million or $1.10 per diluted common share for the quarter ended March 31, 2022.
• Consistent Profitability: Return on average assets (“ROAA”), return on average common equity (“ROACE”) and return on average tangible common equity (“ROATCE”) were 1.19%, 14.39% and 15.50% for the three months ended June 30, 2022 compared to 1.22%, 12.62% and 13.62% for the three months ended June 30, 2021. ROAA, ROACE and ROATCE were 1.08%, 12.30% and 13.22% for the three months ended March 31, 2022.
• Expanding Net Interest Margin: Net interest margin increased to 3.25% for the three months ended June 30, 2022 from 3.12% for the first quarter of 2022. Loan and overall interest-earning asset yields increased 14 and 20 basis points to 4.13% and 3.48% in the second quarter of 2022 from 3.99% and 3.28% in the three months ended March 31, 2022. The Company’s cost of funds increased six basis points for the comparable three month period from 0.17% to 0.23%.
• Positioned for Rising Rates:
  • Increasing Loan Yields: End of period contractual rates increased by 20 basis points to 4.05% at June 30, 2022 compared to March 31, 2022. The loan portfolio is positioned for rising rates with $481.5 million or 29% of net portfolio loans scheduled to reprice monthly or in the next three months and an additional $53.1 million or 3% repricing in the following nine months. The Bank’s effective duration on the loan portfolio was 2.1 years at June 30, 2022.
  • Improved Deposit Franchise: Focused efforts have increased non-interest-bearing accounts to 30.5% of deposits at June 30, 2022 from 22.2% of deposits at June 30, 2021.
• Market Share Gains Delivered Loan Growth: Total portfolio loans increased to $1,652.5 million, an increase of $22.9 million or 5.6% annualized, compared to the prior quarter, and $73.6 million or 9.3% annualized, from December 31, 2021, as the Company continued to gain market share in Virginia. The loan pipeline at June 30, 2022 was $166.0 million, which is expected to provide solid loan growth in the third quarter.
• Improving Asset Quality: Non-accrual loans, OREO and TDRs were $6.7 million or 0.29% of total assets at June 30, 2022 compared to $7.9 million or 0.34% of total assets at March 31, 2022, and $15.8 million or 0.72% at June 30, 2021.
• Proactive Compensation Adjustments to Attract and Retain Employees: In May of 2022, management approved a 4% base compensation increase for non-executive employees to attract and retain employees. The Bank also increased its minimum starting wage from $17.00 per hour to $20.00 per hour. Management expects total noninterest expenses of $9.6 million to $9.7 million for the third quarter of 2022.
• Continued Virginia Expansion: The Bank opened its second Virginia branch in May 2022 in Fredericksburg. Additionally, with our Virginia lending team managing approximately 50% of the Bank’s loans, the Bank intends to open a loan production office in Charlottesville in the fourth quarter of 2022 to support our existing efforts there.

Management Commentary

“I’m very proud of what we’ve accomplished and the bank we’ve built over the past eight years since I was named as CEO,” stated William J. Pasenelli, Chief Executive Officer. “We have built on our position as the leading community bank in Southern Maryland to profitably grow assets, improve our deposit franchise and expand into Virginia. Our success reflects our unwavering commitment to serve the financial needs of the communities in which we live and work. I am confident that Community Bank of the Chesapeake’s best days are ahead.”

“Net interest income increased $1.1 million to $17.6 million during the second quarter as loan growth combined with increasing yields and stable funding costs. Net interest margin for the period increased 13 basis points and should see further improvement as a large percentage of our loans should reprice upwards over the next few months,” stated James M. Burke, President. “We remain focused on delivering results to our communities, customers, employees and shareholders. Our asset sensitivity, low-cost deposit franchise, solid loan growth and continued cost discipline should position the Company to improve our profitability in the second half of the year.”

“Also during the second quarter, we supported our most important asset – our employees – as we approved a 4% increase to base compensation and increased our minimum hourly wage to $20.00. We have a great team and our increased performance over the last several years is due to their execution of our strategic plan. It is critically important to continue to attract and retain the best and brightest employees, and these compensation actions recognized the impact inflation is having on their daily lives,” continued Burke. “Our employees are exceptionally efficient with the support of innovative technology, and we are optimistic that our commitment to them will continue to drive increasing profitability.”

Results of Operations

Net Interest Income

Net interest income for the comparable quarters increased primarily from growth in investments and increases in interest-earning asset yields partially offset by increased interest expense from higher funding volume. Net interest margin of 3.25% for the three months ended June 30, 2022 decreased 12 basis points from 3.37% for the three months ended June 30, 2021 and increased 13 basis points from 3.12% for the three months ended March 31, 2022. Net interest margin expanded during the second quarter of 2022, primarily due to average yields on loans and investments increasing to 4.13% and 1.52% for the three months ended June 30, 2022 from 3.99% and 1.33% for the three months ended March 31, 2022. Interest income from the Company’s participation in the U.S. SBA PPP program was $0.3 million and $1.3 million for the three months ended June 30, 2022 and June 30, 2021, respectively and $0.5 million for the three months ended March 31, 2022.

Net interest income increased for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 due primarily to growth in investments partially offset by decreased interest expense from lower long-term funding volume. Loan interest income decreased $0.5 million to $32.4 million for the six months ended June 30, 2022 from $32.9 million for the three months ended June 30, 2021. Excluding U.S. SBA PPP loan interest income for the same comparable periods increased $1.8 million to $31.6 million from $29.8 million. Net interest margin of 3.19% for the six months ended June 30, 2022 was 24 basis points lower than the 3.43% for the six months ended June 30, 2021. U.S. SBA PPP loan interest positively impacted margins by five basis points for the six months ended June 30, 2022 and 13 basis points for the six months ended June 30, 2021.

The Company’s cost of funds was 0.23% during the second quarter of 2022 compared to 0.17% for the prior quarter and increased from 0.21% for the three months ended June 30, 2021. The Bank’s interest rate asset sensitivity improved as average non-interest bearing deposit accounts increased to 31.8% of total average deposits for the second quarter of 2022 compared to 22.1% for the comparable period in 2021 and 29.6% for the previous quarter. Management is optimistic that improvements in the Bank’s funding composition will benefit margins and profitability in an increasing interest-rate environment. The Company’s cost of funds was 0.20% during the first six months of 2022 compared to 0.23% for the six months ended June 30, 2021.

Noninterest Income

The $0.4 million decrease in noninterest income in the current quarter was principally due to no interest rate protection referral fee income compared to $0.6 million for the three months ended June 30, 2021. In addition, changes in interest rates resulted in $0.2 million of unrealized losses on securities invested in a Community Reinvestment Act mutual fund which contributed to the overall decrease. These reductions in noninterest income for the comparable quarters were partially offset by increases in service charges of $0.2 million due to increased interchange fees and gains of $0.2 million from the sale of two impaired loans. Noninterest income as a percentage of average assets was 0.25% and 0.35%, respectively, for the three months ended June 30, 2022 and 2021.

The $1.3 million decrease in noninterest income for the six months ended June 30, 2022 compared to the same period in the prior year was principally due to reductions in interest rate protection referral fee income of $0.7 million, $0.6 million in gains on the sale of investment securities sold in the first six months of 2021 and $0.3 million in unrealized losses on securities invested in a Community Reinvestment Act mutual fund in the first six months of 2022 due to changes in interest rates. These reductions for the comparable periods were partially offset by $0.4 million related to the sale of impaired loans. In the first quarter of 2021, the Bank sold non-accrual and classified commercial real estate and residential mortgage loans and recognized a loss on the sale of $0.2 million and in the second quarter of 2022, impaired loan sales resulted in a gain of $0.2 million. Noninterest income as a percentage of assets was 0.25% and 0.40%, respectively, for the six months ended June 30, 2022 and 2021.

Noninterest Expense

Noninterest expense of $9.3 million for the three months ended June 30, 2022 decreased $40,000 or 0.4% compared to the three months ended June 30, 2021. The flat overall expense run rate for the comparable periods were primarily due to decreases of $0.3 million in compensation and benefits and $0.5 million in OREO expenses, partially offset by increases of $0.1 million in occupancy expenses and $0.2 million in professional fees as well as a fraud recovery of $0.2 million in the second quarter of 2021.

Noninterest expense of $18.4 million decreased $1.1 million or 5.7% for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The decrease in noninterest expense for the comparable periods was primarily due to decreases in fraud losses of $1.0 million and $0.7 million in OREO expenses. If the allocation of deferred costs for U.S. SBA PPP loans originated were included in noninterest expense for the six months ended June 30, 2021, compensation and benefits and the overall variance in expenses would increase by $0.3 million. These decreases to noninterest expense were partially offset by increases in professional fees of $0.3 million and $0.1 million in occupancy expense. Noninterest expense in the first six months of 2021 included a $1.3 million initial expense and subsequent recovery of $0.2 million related to an isolated wire transfer fraud incident. Our investigation determined that no information systems of the Bank were compromised, and no employee fraud was involved. OREO expenses have moderated as the Bank has been successful at disposing foreclosed assets over the last two years, which have been reduced from $1.5 million at June 30, 2021 to no OREO assets at June 30, 2022. Excluding the impact of the $1.1 million isolated fraud losses and the $0.3 million in U.S. SBA PPP deferred costs, the Company’s noninterest expense was $18.7 million for the six months ended June 30, 2021.

Lower than anticipated health care costs and a lower average full-time equivalent headcount contributed to a lower expense run rate in the first six months of 2022. In addition, compensation and benefits expense has benefited from the Company’s increased use of technology. In the second quarter, the Bank increased base compensation by 4% and its minimum starting wage to $20.00 per hour for non-executive employees to address local wage pressures caused by inflation and to attract and retain our employees. Management’s projected quarterly expense run rate for the third quarter of 2022 is estimated between $9.6 million and $9.7 million and includes consideration of the base compensation increases and an average FTE count of 195-197 employees.

The Company’s efficiency ratio was 49.17% and 49.90% for the three and six months ended June 30, 2022 compared to 51.27% and 52.55% for the three and six months ended June 30, 2021. The Company’s net operating expense ratio was 1.38% and 1.35% for the three and six months ended June 30, 2022 compared to 1.42% and 1.46% for the three and six months ended June 30, 2021. The efficiency and net operating expense ratios have improved (decreased) as the Company has been able to improve asset quality and generate more operating revenues while controlling expense growth.

Income Tax Expense

The effective tax rate for the three months ended June 30, 2022 was 25.74% compared to an effective tax rate of 25.40% for the three months ended June 30, 2021. The effective tax rate for the six months ended June 30, 2022 was 25.54% compared to an effective tax rate of 25.32% for the six months ended June 30, 2021.

Balance Sheet

Assets

Total assets decreased $3.8 million, or 0.2%, to $2.32 billion at June 30, 2022 compared to total assets of $2.33 billion at December 31, 2021. Cash decreased a net of $51.5 million and was used to fund net loan growth of $49.3 million. In addition, deferred tax assets increased $11.2 million to $20.2 million primarily due to the adoption of the current expected credit losses (“CECL”) accounting standard on January 1, 2022 and increases in unrealized losses of the Bank’s AFS investment portfolio related to changes in interest rates.

During the second quarter of 2022, total net loans, which include portfolio loans and U.S. SBA PPP loans, increased 3.1% annualized or $12.6 million from $1,623.4 million at March 31, 2022 to $1,636.1 million at June 30, 2022. Net portfolio loans increased 5.7% annualized or $22.9 million from $1,608.2 million at March 31, 2022 to $1,631.1 million at June 30, 2022. Portfolio loans include all loan portfolios except the U.S. SBA PPP loan portfolio. The Company’s loan pipeline was $166.0 million at June 30, 2022.

Non-owner occupied commercial real estate as a percentage of risk-based capital at June 30, 2022 and December 31, 2021 were $893.9 million or 351% and $813.0 million or 331%, respectively. Construction loans as a percentage of risk-based capital at June 30, 2022 and December 31, 2021 were $133.1 million or 52% and $140.4 million or 57%, respectively.

Funding

Total deposits increased $29.2 million or 1.4% (2.8% annualized) at June 30, 2022 compared to December 31, 2021. The increase included a $42.3 million increase to transaction deposits offset by a $13.1 million decrease to time deposits. During the first six months of 2022, non-interest-bearing demand deposits increased $189.9 million to $635.6 million at June 30, 2022, representing 30.5% of deposits, compared to 21.7% of deposits at December 31, 2021. The Company’s business development efforts continue to focus on increasing non-interest bearing and lower cost transaction accounts.

Stockholders’ Equity and Regulatory Capital

During the six months ended June 30, 2022, total stockholders’ equity decreased $23.3 million. Equity increased due to net income of $13.1 million and net stock related activities in connection with stock-based compensation and ESOP activity of $0.5 million. The decrease in equity was primarily due to an increase of $29.9 million in accumulated other comprehensive loss (“AOCL”) in the Bank’s AFS securities portfolio due to changes in market interest rates. In addition, equity decreased for common dividends paid of $1.9 million, stock repurchases of $3.0 million and $2.0 million for the adoption of the CECL accounting standard on January 1, 2022.

The Company’s common equity to assets ratio decreased to 7.96% at June 30, 2022 from 8.94% at December 31, 2021. The Company’s ratio of tangible common equity (“TCE”) to tangible assets decreased to 7.49% at June 30, 2022 from 8.48% at December 31, 2021 (see Non-GAAP reconciliation schedules) due primarily to increases in AOCL. Regulatory capital was not impacted by the increase in AOCL and Tier 1 capital to average asset ratios at the Bank and the Company remained strong at 10.12% and 9.42% at June 30, 2022 compared to 9.95% and 9.23% at December 31, 2021.

On December 9, 2021, the Company announced its Board of Directors approved the resumption of repurchases allowed under the stock repurchase plan originally adopted in October 2020 (the “2020 Repurchase Plan”). The Company was permitted to repurchase up to the 99,450 shares remaining under the 2020 Repurchase Plan using up to $4.0 million in the aggregate and up to $1.5 million in the aggregate on a quarterly basis. During the second quarter of 2022, the Company repurchased 38,017 shares at an average price of $39.43 per share. At June 30, 2022 the Company had $0.6 million remaining under the $4.0 million authorization and 13,647 shares available to be repurchased under the 2020 Repurchase Plan.

Asset Quality

Allowance for credit losses (“ACL”) and provision for credit losses (“PCL”); Allowance for Loan Losses (“ALLL”) and provision for loan losses (“PLL”)¹; Classified and Non-Performing Assets

On January 1, 2022, the Company adopted ASU 2016-13, Financial Instruments – Credit Losses (Topic 326) – Measurement of Credit Losses on Financial Instruments, which replaced the incurred loss methodology for determining our ACL with an expected loss methodology that is referred to as the CECL. The measurement of expected credit losses under the CECL methodology applies to financial assets subject to credit losses and measured at amortized cost, and certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments, and financial guarantees. In addition, ASU 2016-13 made changes to the accounting for available-for-sale (“AFS”) debt securities. Credit- related impairments on AFS debt securities are now recognized as an allowance for credit loss rather than a write-down of the securities’ amortized cost basis when management does not intend to sell or believes that it is not likely that they will be required to sell the securities prior to recovery of the securities amortized cost basis. We adopted ASU 2016-13 using the modified retrospective method. Results for reporting periods beginning after January 1, 2022 are presented under ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable GAAP. At adoption, the Company did not hold Held to Maturity (“HTM”) investment debt securities.

The impact at adoption was an increase to the ACL of $2.5 million, the recording of a reserve for unfunded commitments of $0.2 million and a decrease in retained earnings of $2.0 million.

ACL balances increased to 1.30% of portfolio loans at June 30, 2022 compared to an ALLL of 1.17% of portfolio loans at December 31, 2021. At and for the three months ended June 30, 2022, the Company’s ACL increased $3.0 million or 16.2% to $21.4 million at June 30, 2022 from $18.4 million at December 31, 2021. The Company recorded a $0.4 million and $0.9 million PCL for the three and six months ended June 30, 2022 compared to a $0.3 million and $0.6 million PLL for the three and six months ended June 30, 2021. There were $0.4 million in net charge-offs during the six months ended June 30, 2022 compared to $1.5 million in net charge-offs for the six months ended June 30, 2021.

Management believes that the allowance is adequate at June 30, 2022.

Classified assets increased $0.9 million from $5.2 million at December 31, 2021 to $6.1 million at June 30, 2022. Management considers classified assets to be an important measure of asset quality. The Company’s risk rating process for classified loans is an important factor in the Company’s ACL qualitative framework. Management remains committed to expeditiously resolving non-performing or substandard credits that are not likely to become performing or passing credits in a reasonable timeframe.

During 2021, classified assets decreased $17.1 million. Asset quality improved with the resolution of $16.9 million in non-accrual and impaired loans through loan sales and negotiated payoffs, as well as the resolution of $3.1 million in OREO. The Company’s sale of impaired loans decreased the specific reserve, improved asset quality, and improved several ALLL qualitative factors.

The ratio of non-accrual loans and OREO to total portfolio loans and OREO decreased 10 basis points from 0.48% at December 31, 2021 to 0.38% at June 30, 2022. The ratio of non-accrual loans, OREO and TDRs to total assets decreased six basis points from 0.35% at December 31, 2021 to 0.29% at June 30, 2022. 

Non-accrual loans decreased $1.4 million from $7.6 million at December 31, 2021 to $6.2 million at June 30, 2022. There were no OREO balances at June 30, 2022 and December 31, 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 $2.3 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 Fredericksburg – Downtown and Fredericksburg – Harrison Crossing, 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”, “assume” 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: (i) 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; (ii) 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 undertaken or that we undertake in the future; (iii) plans and cost savings regarding branch closings or consolidation; (iv) projections related to certain financial metrics; (v) expected benefits of programs we introduce, including residential mortgage programs and retail and commercial credit card programs; and (vi) any statement of expectation or belief, and any 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: (i) 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); (ii) the impacts related to or resulting from Russia’s military action in Ukraine, including the broader impacts to financial markets and the global macroeconomic and geopolitical environments; (iii) assumptions that interest-earning assets will reprice faster than interest-bearing liabilities and the Bank’s ability to maintain its current favorable funding mix; (iv) 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; (v) changes in the Company’s or the Bank’s strategy, costs or difficulties related to integration matters might be greater than expected; (vi) availability of and costs associated with obtaining adequate and timely sources of liquidity; (vii) the ability to maintain credit quality; (viii) general economic trends and conditions, including inflation and its impacts; (ix) changes in interest rates; (x) loss of deposits and loan demand to other financial institutions; (xi) substantial changes in financial markets; (xii) changes in real estate value and the real estate market; (xiii) regulatory changes; (xiv) the impact of government shutdowns or sequestration; (xv) the possibility of unforeseen events affecting the industry generally; (xvi) the uncertainties associated with newly developed or acquired operations; (xvii) the outcome of pending or threatened litigation, or of matters before regulatory agencies, whether currently existing or commencing in the future; (xiii) market disruptions and other effects of terrorist activities; and (xix) the matters described in “Item 1A Risk Factors” in the Company’s Annual Report on Form 10-K for the Year Ended December 31, 2021, 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, 2022. 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, 2021.

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

SUPPLEMENTAL QUARTERLY FINANCIAL DATA
CONSOLIDATED INCOME STATEMENT (UNAUDITED)

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

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

** Non-GAAP financial measure. See reconciliation of GAAP and NON-GAAP measures.
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(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. December 31, 2021, September 30, 2021 and June 30, 2021 reported balance are shown net of deferred costs and fees to conform with the current period’s presentation.

(2) Delinquency excludes Purchase Credit Impaired (“PCI”) loans for December 31, 2021, September 30, 2021 and June 30, 2021.

(3) There were no COVID-19 deferred loans in process as of July 25, 2022 that were reported as delinquent as of June 30, 2022.

(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, 2022 and December 31, 2021, the Company had current non-accrual loans of $6.1 million and $6.7 million, respectively.

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

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

SUPPLEMENTAL YEAR TO DATE FINANCIAL DATA (UNAUDITED)

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

RECONCILIATION OF NON-GAAP MEASURES (UNAUDITED)

Reconciliation of U.S. 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.

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 provisions for credit losses, 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 provisions for credit losses of various institutions will likely vary based on the geography of the communities served by a particular institution.

AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME (UNAUDITED)