2 0 1 6 A n n u Al R e p o R t
Our Story
Community is our name, and
we live it each day by exceeding
expectations. More creative solutions.
More focus. More support. Greater
compassion. It’s the best part about
being a true local bank. We can get
things done, strengthen businesses
and drive this community to its
fullest potential. Anything is possible
when we work together.
Table of
Contents
4: Board Photo
5: Management Team Photo
6-7: Year in Review
8-9: Community Involvement
10-11: Financials
12: Locations
Shareholder Letter
Dear Shareholder,
this past year was very successful for your Company in many
important areas. the Community Financial Corporation and its
subsidiary, Community Bank of the Chesapeake, continued along
its path of organic growth and strong earnings production to add
value to our franchise and expand our market position. We were
able to achieve this success with over 18% in loan growth and
prudent cost control over funding and operating expenses. As a
result, net income grew by 16% in 2016 compared to 2015, while
diluted earnings per share grew by 18%.
For the past 31 years, the Community Financial Corporation
has consistently increased its book value through net income
generated by safe and sound growth. In 2016, we made
adjustments to our footprint in Virginia through branch expansion
as well as achieved first place in FDIC insured deposits in Southern
Maryland. We believe that our efforts in 2016 should have a
positive impact on next year’s financial results.
Asset quality continues to improve by all measures. For example,
total non-accrual loans have fallen from $11 million at the end of
2015 to $8 million at the end of 2016, a drop of 27%. other real
estate owned has similarly declined from $9 million to under $8
million, a reduction of 18%. these measures, combined with the
increase in total assets, have led to reductions in non-performing
loans from 1.17% of loans in 2015 to 0.71% in 2016. overall, non-
performing assets have fallen from 1.83% of assets at the end of
2015 to 1.21% at the end of 2016.
A positive trend has been extended for quarterly increases
in net earnings as the fourth quarter of 2016 marked the fifth
straight quarter of increasing earnings; dating back to the
middle of 2015. earnings have increased from $.28 per share,
or $1.3 million, in the third quarter of 2015 to $.44 per share, or
over $2.0 million, in the fourth quarter of 2016. these earnings
increases have been the result of safe and sound loan and
deposit growth combined with overall operating expense
control.
the Bank invested in significant infrastructure over the past
several years to build service level processes that allowed it to
compete more effectively in the commercial banking sector
of our market. our enhanced product lineup and outstanding
customer service have enabled us to attract increasingly larger
customers. As with all of our relationships, large and small, it is
the personal service combined with outstanding competitive
products and services that give us the edge in acquiring new
relationships and maintaining them over time.
Another milestone in our success was an invitation to ring
the closing bell at nASDAQ in the fourth quarter of 2016. We
received widespread financial coverage and experienced
positive results in our stock price appreciation during the last
quarter of the year.
In closing, our Company, and its well-respected community
bank has continued to build its base for successful operations
in our region. It is through your support and advocacy, as well
as the efforts of our staff, management team and board, that
this is possible. We look forward to the future in an optimistic
manner and believe together we can extend our positive trend
toward top-tier performance.
Yours truly,
Michael l. Middleton
Chairman of the Board
William J. pasenelli
president and Ceo
3
Board of Directors
Back Row (l to R): M. Arshed Javaid / Austin J. Slater, Jr. / Mary todd peterson / louis p. Jenkins, Jr. / James R. Shepherd /
Gregory C. Cockerham / John K. parlett, Jr. / Kathryn M. Zabriskie / Kimberly Briscoe-tonic / James F. Di Misa
Front Row (l to R): James M. Burke / William J. pasenelli / Michael l. Middleton / Joseph V. Stone, Jr.
not pictured: philip t. Goldstein
4
Board of Directors
Management Team
Back Row (l to R): todd Capitani, eVp, Chief Financial officer / James F. Di Misa, eVp, Chief operating officer /
Gregory C. Cockerham, eVp, Chief lending officer
Front Row (l to R): Christy M. lombardi, eVp, Chief Administrative officer / James M. Burke, president and Chief Risk officer /
William J. pasenelli, Chief executive officer / Rebecca J. Henderson, eVp, Director of Sales
5
Year in Review
2016 January
Community Bank of the
Chesapeake began a
new partnership with
the Charles County
Arts Alliance to bring
the work of local artists
to the Waldorf/Home
office branch.
Since the 2014 launch of the Community Art Series, the Bank
has partnered with five art organizations to share artwork
throughout the Bank’s branches. the Bank currently partners
with Mattawoman Creek Art Center (la plata branch), St. Mary’s
Arts Council and Color and light Society (Charlotte Hall and
lexington park branches), the Arts Council of Calvert County
(prince Frederick branch) and the Fredericksburg Center for the
Creative Arts (FCCA) in Downtown Fredericskburg.
At Community Bank, we
support our community in
a number of different ways.
this partnership gives us
the opportunity to support
talented local artists, as
well as an organization that
enriches the lives of the
people in the community.
April
Downtown Fredericksburg Location Opens
the Downtown Fredericksburg branch, located at 425
William Street, is the second branch location in the
Fredericksburg area. the branch provides full service
banking opportunities for the downtown and surrounding
community.
“It is a pleasure working in a bank that continues to grow
and develop while still holding true to its community
values,” said Becky Henderson, executive Vice president,
Director of Sales of Community Bank of the Chesapeake.
“We look forward to forming lasting relationships and
expanding our local reach in the Fredericksburg community.
We hope to, as always, provide exceptional service and
convenience to our existing and prospective customers.”
6
July
Community Bank of the Chesapeake and the
Community Financial Corporation named
Michael l. Middleton as Chairman of the Board.
Mr. Middleton has devoted over 30 years to the
bank as Chief executive officer, then executive
Chairman, shaping and supporting the bank
through his inspiring leadership, visionary
ideas and expert knowledge.
“on behalf of everyone at Community Bank of the
Chesapeake, we are grateful for Mr. Middleton’s decades
of leadership and commitment. It has been an honor to
work with him over the years and see his dedication push
this bank to excel and exceed the expectations we strive
for every day. Mr. Middleton’s expansive knowledge and
experience will help support the bank as he continues to
oversee its strategy and vision,” said William pasenelli, Chief
executive officer of Community Bank of the Chesapeake
August
Community Bank of the Chesapeake announced the appointment of James M. Burke as president
and Chief Risk officer of Community Bank of the Chesapeake. Mr. Burke previously served as
executive Vice president and Chief Risk officer. In his role as president, Mr. Burke assumes leadership
for accelerating business development, brand visibility and delivering targeted growth, while
continuing to focus on the risk environment.
Community Bank of the Chesapeake announced the addition of Kim Briscoe-tonic, James M. Burke,
Gregory C. Cockerham and James F. Di Misa to the Board of Directors.
“these additions to our Board of Directors further enhance the talented team we have at the board
level,” said Michael l. Middleton, Chairman of the Board. “As proven business leaders with many years
of experience, they will undoubtedly bring expertise and insight to the board that will be invaluable
as Community Bank continues to grow in the months and years ahead.”
7
Community Involvement
At Community Bank, our reason for existence is simple: We aim to provide customers and businesses with
superior financial products and services so they can accomplish their goals and reach financial success.
But our vision goes much deeper. It is our ultimate objective to not only support those who entrust us
with their finances, but also to extend financial support to the many organizations that work every day
– in countless ways – to enhance the communities we serve. By providing financial resources to these
organizations, Community Bank is able to directly impact the areas where our customers live and work –
helping to create vibrant, thriving communities we can all be proud to call home.
In 2016,
Community Bank
of the Chesapeake
donated over
$160,000
and countless
volunteer hours
to community
organizations.
Casual for a Cause
Supported entirely by employee contributions, Casual for a Cause is
a unique initiative in which employees are allowed to dress casually
for the summer in exchange for a monetary donation.
the success of this campaign each year is a testament to
the employees’ deep-rooted devotion to Community
Bank’s philanthropic spirit. In 2016, contributions
to Casual for a Cause totaled $6,000, reaching
over $60,000 in total for Causal for a Cause.
“We donated to local healthcare providers
this year as a small thank you for all the
hard work and dedication they put into
improving the health of our community.
providing healthcare is an important
part of building a strong and healthy
community, and it is an honor to be able
to contribute to these organizations,”
said William pasenelli, Chief executive
officer of Community Bank of the Chesapeake.
University of Maryland Charles Regional
Medical Center Foundation
university of Maryland Charles Regional Medical Center is a
regional, not-for-profit, integrated health system serving Charles
County and the surrounding areas of Southern Maryland. With
a focus on constantly reinvesting resources into the community
with innovative technology, community health education and
care for the poor. university of Maryland Charles Regional Health
exists to always provide excellent patient care as measured by
the population’s health, clinical outcomes, patient satisfaction
and cost effectiveness.
MedStar St. Mary’s Hospital Foundation
MedStar St. Mary’s Hospital is a full-service hospital, which
delivers state-of-the-art emergency, acute inpatient and
outpatient care. MedStar St. Mary’s Hospital, located in
leonardtown, Maryland, is a community hospital that upholds its
tradition of caring by continuously promoting, maintaining and
improving health through education and services while assuring
quality care, patient safety and fiscal integrity. MedStar St. Mary’s
Hospital’s vision is to be the trusted leader in caring for people
and advancing health.
8
Calvert Memorial Hospital Foundation
Mary Washington Hospital Foundation
Calvert Health’s trusted team provides Southern Maryland
residents with safe, high-quality health care and promotes
wellness for a healthy community. With a vision to provide
exceptional care and make a difference in every life they touch,
Calvert Memorial Hospital is a staple in the community.
What began as a small hospital with only eight rooms in
Fredericksburg, Virginia, more than a century ago has become
a state-of-the-art regional system. Mary Washington Hospital
is one of two hospitals that are part of the not-for-profit Mary
Washington Healthcare regional system. Mary Washington
Healthcare also has a network of 28 wellness services and
healthcare facilities. Since the early years of Mary Washington
Hospital, their mantra has stayed the same: Mary Washington
Hospital exists to improve the health of people in the
communities we serve.
Financial Scholars Program
12 Days of Giving
Community Bank is proud to sponsor the Financial Scholars
program in community schools.
Building a better community means providing education for
parents, business leaders and citizens of the next generation.
through our financial partnership with everFi, Community Bank
of the Chesapeake is providing education and financial literacy to
students in public high schools throughout Southern Maryland.
everFi is building and operating the nation’s largest network
for K-12 online education in off-curriculum but highly
valuable content areas such as financial literacy, student loan
management and other key life skills for the 21st century student.
the award-winning platform teaches students the principles of
finance through highly engaging 3-D gaming, social networking,
video and messaging applications.
the skills and knowledge learned in this program help the youth
in our communities prepare for adulthood. By equipping them
to be responsible with money, we’re building a brighter future for
them and for our entire region.
Community Bank of the Chesapeake took to social media
to raise awareness of 12 deserving local organizations that
do great things for the community. the selected charitable
groups promoted a wide array of causes, from feeding and
providing shelter for those in need to animal welfare, the
environment and literacy.
the bank featured one per day over a 12-day period on its
Facebook page. every time a user “liked” the bank’s post,
the bank donated $1 (up to 100 likes) to the particular
organization being featured. In addition, the bank donated a
base amount of $250 to each group, for a total amount of up
to $350 given to each cause.
“We sponsored this promotion because we feel strongly
about supporting local organizations that have a passion for
service and community. We were hoping to inspire others
to get involved, lend a hand, back a special cause and do
their part to drive this community to its fullest potential,” said
Diane Hicks, Vice president, Director of Marketing.
9
Financials
(dollars in thousands, except per share amounts)
2016
2015
2014
2013
2012
At or for the Years Ended December 31,
FINANCIAL CONDITION DATA
total assets
loans receivable, net
Investment securities
Deposits
Borrowings
Junior subordinated debentures
Subordinated notes - 6.25%
Stockholders’ equity-preferred
Stockholders’ equity-common
OPERATING DATA
$
1,334,257
$
1,143,332
$
1,082,878
$
1,023,824
$
1,079,519
162,280
1,038,825
144,559
12,000
23,000
-
909,200
144,536
906,899
91,617
12,000
23,000
-
104,426
99,783
862,409
126,445
869,384
76,672
12,000
-
20,000
96,559
799,130
134,648
821,295
70,476
12,000
-
20,000
90,730
Interest and dividend income
$
48,047
$
43,873
$
41,759
$
39,678
$
Interest expenses
net interest income (nII)
provision for loan losses
nII after provision for loan losses
noninterest income
noninterest expenses
Income before income taxes
Income taxes
net income
preferred stock dividends declared
Income available to common shares
COMMON SHARE DATA (A)
Basic earnings per common share
Diluted earnings per common share
Dividends declared per common share
Book value per common share (1)
8,142
39,905
2,359
37,546
3,360
29,159
11,747
4,416
7,331
-
7,345
36,528
1,433
35,095
3,299
28,418
9,976
3,633
6,343
23
6,698
35,061
2,653
32,408
4,093
26,235
10,266
3,776
6,490
200
7,646
32,032
940
31,092
4,174
24,844
10,422
3,771
6,651
200
7,331
$
6,320
$
6,290
$
6,451
$
1.59
$
1.36
$
1.59
0.40
22.54
1.35
0.40
21.48
1.35
1.35
0.40
20.53
$
1.90
$
1.88
0.40
19.52
$
$
981,639
747,641
159,825
820,231
61,527
12,000
-
20,000
59,047
40,293
10,604
29,689
2,529
27,160
4,410
23,804
7,766
2,776
4,990
200
4,790
1.57
1.57
0.40
19.34
25
20
15
10
5
0
$25
$20
$15
$10
$5
$0
Book Value Per Share
2.0
1.5
1.0
0.5
$19.34
$19.52
$20.53
$21.48
$22.54
2012
0.0
2013
2014
2015
2016
10
$2.0
$1.5
$1.0
$0.5
$0.0
Earnings Per Share
Diluted
$1.57
$1.88
$1.35
$1.35
$1.59
2012
2013
2014
2015
2016
(dollars in thousands, except per share amounts)
2016
2015
2014
2013
2012
At or for the Years Ended December 31,
SELECTED FINANCIAL RATIOS
tier 1 capital to average assets (leverage)
total risk-based capital to risk-weighted assets
Return on average assets
Return on average common equity
Interest rate spread
net interest margin
efficiency ratio(2)
net operating expense to average assets(3)
SELECTED ASSET QUALITY DATA
Classified assets
Allowance for loan losses
non-accrual loans(4)
other Real estate owned (oReo)
Classified assets to total assets
Classified assets to risk-based capital
Allowance for loan losses to total loans
net charge-offs to avg. outstanding loans
non-accrual loans to total loans
non-accrual loans and oReo to total assets
9.02 %
13.60
0.60
7.09
3.35
3.48
67.40
2.10
39,246
9,860
8,374
7,763
2.94%
26.13
0.91
0.11
0.77
1.21
10.01%
14.58
0.58
6.33
3.48
3.60
71.35
2.30
43,346
8,540
11,433
9,449
3.79%
30.19
0.93
0.16
1.24
1.83
12.24%
15.21
0.63
6.69
3.55
3.68
67.00
2.16
54,022
8,481
10,263
5,883
4.99%
39.30
0.97
0.28
1.18
1.49
12.5%
15.62
0.69
9.38
3.45
3.56
68.62
2.13
56,880
8,138
15,451
6,797
5.56%
43.11
1.01
0.14
1.91
2.17
9.39%
12.84
0.52
8.29
3.18
3.31
69.81
2.01
58,595
8,247
13,141
6,891
5.97%
59.02
1.09
0.27
1.74
2.04
(A) In october 2013, the Company issued 1,591,300 shares of common stock at a price of $18.75 per share resulting in net proceeds of $27.4 million after commissions and related offering expenses.
the additional shares outstanding impacted year to year comparability of per share earnings and book value beginning with fourth quarter 2013 results.
(1) the Company had no intangible assets as of the dates indicated. thus, tangible book value per share is the same as book value per share for each of the periods indicated.
(2) efficiency ratio is noninterest expense divided by the sum of net interest income and noninterest income.
(3) net operating expense is the sum of noninterest expense offset by noninterest income.
(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.
the common stock of the Community Financial Corporation (symbol: tCFC) trades on the nASDAQ Stock exchange. the Annual Report and the Company’s annual report on Form 10-K are
available on the Community Bank of the Chesapeake’s website at cbtc.investorroom.com. the Company’s proxy Statement and Annual Report to Stockholders are available at cbtc.com/
proxyandannualreport.
Net Interest Margin and Interest Spread
Last Twelve Quarters
1.5
Interest Rate Spread
net Interest Margin
3.74%
3.73%
1.2
3.67%
3.60%
3.60%
3.63%
3.52%
3.51%
3.60%
3.47%
3.54%
3.48%
0.9
3.50%
3.46%
3.40%
3.35%
0.6
3.67%
3.55%
3.60%
3.61%
3.55%
3.46%
3.47%
3.41%
Q1-13 Q2-13 Q3-13 Q4-13 Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Q2-15 Q3-15 Q4-15
0.3
1.5%
1.2%
0.9%
0.6%
0.3%
Funding Costs
Cost of Deposits
Cost of Funds
2012
2013
2014
2015
2016
11
3.03.54.03.03.54.03.03.54.03.03.54.0
Branch and Lending Office Locations
Anne Arundel County, Maryland
Annapolis – Commercial lending Center
Calvert County, Maryland
Dunkirk
lusby
prince Frederick
prince Frederick – Commercial lending Center
Charles County, Maryland
Bryans Road
la plata
la plata – Commercial lending Center
Waldorf (St. patrick’s Drive and leonardtown Road)
St. Mary’s County, Maryland
Charlotte Hall
leonardtown
lexington park
City of Fredericksburg, Virginia
Central park – Branch and Commercial lending Center
Downtown
Shareholder and Investor Relations
Barbara lucas
Shareholder Relations
Community Bank of the Chesapeake
p. o. Box 38
Waldorf, Maryland 20604
(240) 427-1036
(888) 745-2265
shareholderrelations@cbtc.com
Member FDIC
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