The Community Financial Corporation Announces Record Results of 1.22% Return on Average Assets for First Quarter 2021

First Quarter 2021 Highlights

• Net Income: Net income totaled $6.3 million for the quarter ended March 31, 2021, or $1.07 per diluted common share compared to net income of $2.7 million or $0.47 per diluted common share for the quarter ended March 31, 2020.

• Overall Profitability: The Company’s return on average assets ("ROAA") and return on average common equity ("ROACE") were 1.22% and 12.53% for the three months ended March 31, 2021 compared to 0.61% and 6.00% for the three months ended March 31, 2020. The Company improved ROAA from its previous record results of 1.18% reported in the fourth quarter of 2020.

• Core Profitability: Pre-tax, pre-provision ("PTPP") ROAA and PTPP ROACE increased to 1.68% and 17.34% for the quarter ended March 31, 2021 compared to 1.51% and 14.82% for the quarter ended March 31, 2020.

• Dividend Increase: The Company increased its quarterly per share dividend 20% from $0.125 to $0.15 for the first quarter dividend that will be paid in the second quarter of 2021.

• Asset Quality Improvement

  • Non-accrual loans, OREO and TDRs to total assets decreased 31 basis points to 0.77% at March 31, 2021 from 1.08% at December 31, 2020. Classified assets decreased $6.2 million to $16.1 million at March 31, 2021 from $22.4 million at December 31, 2020.

  • At March 31, 2021, COVID-19 deferred loans decreased to $23.1 million, representing 1.08% of assets, or 1.53% of gross loans, excluding U.S. Small Business Administration ("SBA") Paycheck Protection Program ("PPP") loans.
    

WALDORF, Md., April 23, 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 months ended March 31, 2021. Net income for the three months ended March 31, 2021 was $6.3 million, or $1.07 per diluted common share compared with net income of $6.1 million, or $1.04 per diluted common share for the fourth quarter of 2020, and net income of $2.7 million or $0.47 per diluted common share for the quarter ended March 31, 2020.

Management Commentary

"I am proud of the results our team has delivered during the prolonged pandemic while remaining committed to our communities, our shareholders and each other. This was the second consecutive quarter of record ROAA performance for the Company, despite these challenging economic conditions," stated William J. Pasenelli, Chief Executive Officer. "In addition to delivering strong results during the first quarter, we significantly reduced nonperforming assets, introduced two new product lines, continued to optimize our branch and virtual banking operations, and continued to drive operating efficiency."

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. “These two new programs are the result of outstanding collaboration between our team and two great partners and a great example of how our community bank can provide local businesses and consumers best of class FinTech products and services,” stated James M. Burke, President.

The Bank’s expansion into Virginia has been a growth engine for the last five years. “Since opening our downtown Fredericksburg branch in 2016, our lenders and business development teams have done an incredible job driving deposit and loan growth in this market,” said William J. Pasenelli, Chief Executive Officer. “We believe Fredericksburg provides significant opportunities for continued organic growth supported by our efficient operating model and ability to leverage technology." At March 31, 2021, loans in the greater Fredericksburg, Virginia area accounted for approximately 40% of the Bank's outstanding portfolio loans, and Fredericksburg branch deposits were $89 million with an average cost of deposits of six 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.

Results of Operations

Net Interest Income

Net interest income increased $2.16 million or 15.0% for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. Net interest margin of 3.50% for the three months ended March 31, 2021 increased seven basis points from 3.43% for the comparable period. The increase in net interest income resulted primarily from significant decreases in interest expense from lower funding costs. Interest income decreased from significantly lower asset yields partially offset by increased interest income from larger average balances and accelerated loan fee recognition following the forgiveness of U.S. SBA PPP loans.

The sharp decline in interest rates in 2020 not only reduced interest income on floating-rate commercial loans and liquid interest-earning assets, but it also reduced competitive pressures and depositor expectations concerning deposit interest rates. In 2020, the Company increased its net interest margin in the first quarter, had stable margins during the second and third quarters and slightly increased margins during the fourth quarter of 2020 after adjusting for U.S. SBA PPP loan and funding activity. Net interest margin increased from 3.40% for the three months ended December 31, 2020 to 3.50% for the three months ended March 31, 2021. For the three months ended March 31, 2021, net interest margin increased 18 basis points as a result of net U.S. SBA PPP loan interest income and accelerated loan fee recognition compared to seven basis points for the three months ended December 31, 2020.

Loan yields decreased from 4.56% for the three months ended March 31, 2020 to 4.17% for the three months ended March 31, 2021. Loan yields were 4.25% for the fourth quarter of 2020. Loan yields, excluding U.S. SBA PPP loan interest income, were 4.01% for the three months ended March 31, 2021 compared to 4.24% for the three months ended December 31, 2020.

The Company’s cost of funds continued to decrease during the first 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 non-interest 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 0.93% for the three months ended March 31, 2020 to 0.25% for the three months ended March 31, 2021. During the first quarter of 2021, the Company's cost of funds decreased 17 basis points from 0.42% for the three months ended December 31, 2020.

Excluding the acceleration of interest income with U.S. SBA PPP loan forgiveness, compression of our net interest margin is probable in the second quarter of 2021 as interest-earning assets reprice faster than interest-bearing liabilities. We expect U.S. SBA PPP loan forgiveness to positively impact margins and net interest income in the second and third quarters of 2021 with the recognition of remaining net deferred fees.

Noninterest Income

Noninterest income increased $239,000 or 11.3% for the three months ended March 31, 2021 compared to the three months ended March 31, 2020. The increase for the comparable periods was primarily due to increased gains on the sale of investment securities and increased fees on deposit accounts partially offset by a loss on the sale of impaired loans. 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 average assets was 0.46% and 0.47%, respectively, for the three months ended March 31, 2021 and 2020.

Noninterest Expense

Noninterest expense of $10.1 million for the three months ended March 31, 2021, increased $465,000 or 4.8%, compared to $9.7 million the three months ended March 31, 2020. The increase in noninterest expense for the comparable periods was primarily due to increases in other expenses of $1.4 million and FDIC insurance of $82,000, partially offset by decreases in compensation and benefits of $400,000 and OREO of $600,000. FDIC insurance increased due to the overall significant increase in FDIC insured deposit accounts that began in the second quarter of 2020. OREO expenses have moderated as the Bank has been successful at disposing foreclosed assets over the last 12 month period, which have been reduced from $6.3 million at March 31, 2020 to $2.3 million at March 31, 2021.

Noninterest expense in the first quarter of 2021 included two non-recurring expenses. First, during the first quarter of 2021, the Company incurred an expense of $1.3 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. No additional expense is expected to be incurred relating to this incident and the Company is submitting 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. Second, compensation and benefits were decreased $250,000 as the Company recorded the deferred costs to underwrite U.S. SBA PPP loans. Deferred costs are being amortized as a component of interest income through the contractual maturity date of each individual U.S. SBA PPP loan. Excluding the impact of these two non-recurring expenses, the Company's first quarter 2021 noninterest expense was $9.1 million. The Company's projected quarterly expense run rate for the second quarter of 2021 remains between $9.2-$9.4 million.

The Company’s efficiency ratio was 53.78% for the three months ended March 31, 2021 compared to 58.78% for the three months ended March 31, 2020. The Company’s net operating expense ratio was 1.50% for the three months ended March 31, 2021 compared to 1.68% for the three months ended March 31, 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

The effective tax rate for the three months ended March 31, 2021 was 25.24% compared to an effective tax rate of (2.1%) for the three months ended March 31, 2020. The Company's new state tax apportionment approach was implemented during the first quarter of 2020 and included the impact of amended income tax filings of the Company and Bank. Management evaluated the tax position and determined the change in tax position qualified as a change in estimate under FASB ASC Section 250. The following table shows a breakdown of income tax expense for the three months ended March 31, 2020 split between the apportionment adjustment and a normalized 2020 income tax provision:

Balance Sheet

Assets

Total assets increased $123.1 million, or 6.1%, to $2.15 billion at March 31, 2021 compared to total assets of $2.03 billion at December 31, 2020 primarily due to increased cash of $110.8 million. The increase in cash 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 from the recent legislation that authorized another round of federal government funding for U.S. SBA PPP loans in December 2020. In addition, net loans and investments increased $8.2 million and $6.4 million, respectively, partially offset by decreases to OREO of $780,000 and all other assets of $1.6 million. The Company’s loan pipeline was $133.3 million at March 31, 2021.

During the first quarter of 2021, total net loans, which include portfolio loans and U.S. SBA PPP loans, increased 2.1% annualized or $8.2 million from $1,594.1 million at December 31, 2020 to $1,602.3 million at March 31, 2021. Gross portfolio loans increased 0.8% annualized or $2.9 million from $1,504.3 million at December 31, 2020 to $1,507.2 million at March 31, 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 March 31, 2021 and December 31, 2020 were $741 million or 328% and $696 million or 316%, respectively. Construction loans as a percentage of risk-based capital at March 31, 2021 and December 31, 2020 were $126 million or 56% 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 $1,859.9 million or 98.1% of funding at March 31, 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 1.9% of funding at March 31, 2021 compared to $35.3 million or 2.0% of funding at December 31, 2020.

Total deposits increased $122.3 million or 7.0% (28.0% annualized) at March 31, 2021 compared to December 31, 2020. The increase comprised a $127.5 million increase to transaction deposits offsetting a $5.2 million decrease to time deposits. Non-interest-bearing demand deposits increased $44.2 million or 12.2% at March 31, 2021, representing 21.8% 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 three months ended March 31, 2021, total stockholders’ equity increased $2.7 million due to net income of $6.3 million and net stock related activities in connection with stock-based compensation and ESOP activity of $0.2 million. These increases to equity were partially offset by common dividends paid of $0.7 million and a decrease in accumulated other comprehensive income of $2.8 million due to decreased unrealized gains in the investment portfolio.

The Company's common equity to assets ratio decreased to 9.34% at March 31, 2021 from 9.77% at December 31, 2020. The Company’s ratio of tangible common equity ("TCE") to tangible assets decreased to 8.82% at March 31, 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 and loans from COVID-19 government stimulus.

In April 2020, banking regulators issued an interim final rule that excluded U.S. SBA PPP loans pledged under the PPPLF from the calculation of the leverage ratio. The Bank did not have any PPPLF advances at March 31, 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 March 31, 2021 with a Tier 1 capital to average assets ("leverage ratio") of 9.70% at March 31, 2021 compared to 9.56% at December 31, 2020.

Asset Quality

COVID-19 Loan Programs

While the outbreak of COVID-19 adversely impacted a range of industries in the Company's footprint, we have taken steps to protect the health and well-being of our employees and customers and to assist customers who have been impacted by the COVID-19 pandemic. The Coronavirus Aid, Relief and Economic Security ("CARES") Act was signed into law on March 27, 2020. There have been additional clarifications to regulation and legislation since the original law was passed, including the recent legislation that authorized another round of federal government funding for U.S. SBA PPP loans in December 2020.

U.S. SBA PPP balances increased a net of $5.4 million during the first quarter of 2021 which resulted in 865 of loans with balances of $115.7 million at March 31, 2021. 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. During the three months ended March 31, 2021, the Company originated $53.4 million or 456 of new U.S. SBA PPP loans under the recent round of authorized funding and processed forgiveness for $48.0 million or 447 of U.S. SBA PPP loans.

Beginning in April of 2020, the Company added COVID-19 payment deferral programs for impacted customers. The Company deferred either the full loan payment or the principal component of the loan payment for a period of between 90 and 180 days with most deferrals set to a six month period. As of March 31, 2021, $23.1 million or 1.5% of gross portfolio loans had deferral agreements, down $12.3 million from the $35.4 million or 2.4% of gross portfolio loans at December 31, 2020. All COVID-19 deferred loans were current prior to the crisis and will not be considered delinquent loans or troubled debt restructures ("TDRs") upon completion of the modification agreements due to provisions in the CARES Act and regulations that permit U.S. financial institutions to temporarily suspend U.S. GAAP requirements to treat such loan modifications as TDRs.

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

The Company's allowance reflects the continued economic uncertainty from the COVID-19 pandemic. The ALLL increased in 2020 primarily due to the economic effects of the COVID-19 pandemic. The Company's allowance methodology considers quantitative historical loss factors and qualitative factors to determine the estimated level of incurred losses in the Company's loan portfolios. ALLL levels decreased to 1.21% of portfolio loans at March 31, 2021 compared to 1.29% at December 31, 2020. At and for the three months ended March 31, 2021, the Company's ALLL decreased $1.2 million or 6.0% to $18.3 million at March 31, 2021 from $19.4 million at December 31, 2020. The decrease in the general allowance was primarily due to improvements in the qualitative factors of delinquency and risk classification rating, as well as slower loan growth partially offset by higher charge-offs in the first quarter.

The Company recorded a $295,000 PLL for the three months ended March 31, 2021 compared to $4.1 million for the three months ended March 31, 2020. Net charge-offs also increased for the comparable periods from a $19,000 recovery in the first quarter of 2020 to $1.5 million in net charge-offs in the first quarter of 2021. During the three months ended March 31, 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 March 31, 2021 and December 31, 2020, there were $1.0 million and $3.4 million, respectively, of COVID-19 deferred loans deemed to be non-accrual and substandard based on reviews.

Management believes that the allowance is adequate at March 31, 2021.

During 2020, classified assets decreased $12.3 million. The sale of $9.1 million in impaired loans during the first quarter of 2021 was a continuation of management's intent to expeditiously resolve non-performing or substandard credits that were not likely to become performing or passing credits in a reasonable timeframe. Classified assets decreased $6.2 million from $22.4 million at December 31, 2020 to $16.1 million at March 31, 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 36 basis points from 1.42% at December 31, 2020 to 1.06% at March 31, 2021. Non-accrual loans, OREO and TDRs to total assets decreased 31 basis points from 1.08% at December 31, 2020 to 0.77% at March 31, 2021.

Non-accrual loans decreased $4.6 million from $18.2 million at December 31, 2020 to $13.6 million at March 31, 2021. Non-accrual loans of $8.2 million (60%) were current with all payments of principal and interest with specific reserves of $42,000 at March 31, 2021. Delinquent non-accrual loans were $5.5 million (40%) with specific reserves of $742,000 at March 31, 2021.

The OREO balance decreased $780,000 from $3.1 million at December 31, 2020 to $2.3 million at March 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 $2.1 billion. Through its branch offices and commercial lending centers, Community Bank of the Chesapeake offers a broad range of financial products and services to individuals and businesses. The Company’s 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 March 31, 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)

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.

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

(3) There were no COVID-19 deferred loans in process as of April 23, 2021 that were reported as delinquent as of March 31, 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 March 31, 2021 and December 31, 2020, the Company had current non-accrual loans of $8.2 million and $6.3 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.
____________________________________

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

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.

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")

We believe that pre-tax pre-provision income, which reflects our profitability before income taxes and loan loss provisions, allows investors to better assess our operating income and expenses in relation to our core operating revenue by removing the volatility that is associated with credit provisions and different state income tax rates for comparable institutions. We also believe that during a crisis such as the COVID-19 pandemic, this information is useful as the impact of the pandemic on the loan loss provisions of various institutions will likely vary based on the geography of the communities served by a particular institution.

AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME (UNAUDITED)