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Community Financial income drops in 3Q

Net income available to common shareholders fell $556,000, or 30.2 percent, in the third quarter for  Community Financial Corporation, the Waldorf-based holding company for Community Bank of the Chesapeake, company officials announced Thursday.

The drop in income to $1.3 million, or $0.27 per common share (diluted), compared to $1.8 million, or $0.39 per common share (diluted), for the three months ended Sept. 30, 2014.

Third quarter 2015 earnings were primarily affected because of a decision to sell the branch building and equipment in King George, Va., increased interest expense from the refinancing of SBLF with subordinated debt at 6.25 percent during the first quarter of 2015 and a reduction in gains on loans held for sale. The Bank stopped originating residential mortgages in April 2015.

In addition, yields on the loan portfolio have declined  because of the lower interest environment. Commercial real estate loan portfolio yields were affected as loans have reset at current low interest rates and the competition for loan volume has increased in the local market.

Consolidated net income available to common shareholders for the nine months ended Sept. 30, 2015 and 2014 remained the same at $4.8 million. Earnings per common share (diluted) at $1.02 decreased $0.01 from$1.03 per common share (diluted) for the nine months ended Sept. 30, 2014. Increased net interest income and decreased preferred stock dividends were offset by decreased noninterest income and increased noninterest expense.

“The company has made a number of strategic decisions during the first nine months of the year to ensure a solid framework to meet   our longer-term objectives of increased profitability. We have taken measures to redefine the space in which the Bank will operate in the future as well as its focus on products and services that provide better operating margins and market acquisition potential,” Executive Chairman Michael J. Middleton said. “We exited originating residential mortgages, preemptively refinanced our SBLF debt and are continuing our prudent evaluation of our branching strategy on an ongoing basis.”

The Company agreed to sell its King George, Va., branch building and equipment to InFirst Federal Credit Union. The transaction is expected to close in the first quarter of 2016, pending regulatory approval. The Company will transfer the $9 million in deposits to its La Plata or Fredericksburg, Va., branches.

Employees will be offered open positions with the bank. The third quarter 2015 operating results 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 current direct annual operating costs of the King George branch will have an immediate positive impact on earnings per share in 2016 with the earned back estimated to be less than 10 months.

“Making changes to the branch network is never an easy decision,” said William J. Pasenelli, president and chief executive officer.  “However, with customers doing more of their banking using online and mobile channels, there is an opportunity to maximize efficiencies without materially impacting the banking habits of our customers. Community Bank remains committed to this region, as we expand our presence in Fredericksburg early next year with a second branch opening in Fredericksburg in early 2016.”