KBRA Withdraws Ratings for The Community Financial Corporation
5 Jul 2023 | New York
KBRA withdraws the senior unsecured debt rating of BBB, the subordinated debt rating of BBB-, and short-term debt rating of K3 for Waldorf, Maryland-based The Community Financial Corporation (NASDAQ: TCFC) ("the company") following the completion of its merger with Shore Bancshares, Inc. (NASDAQ: SHBI) on July 1, 2023. Additionally, KBRA withdraws the deposit and senior unsecured debt rating of BBB+, the subordinated debt rating of BBB, and short-term deposit and debt ratings of K2 for main subsidiary, Community Bank of the Chesapeake.
Key Credit Considerations
Overall, KBRA believes that the merger between these two institutions presents many potential benefits, if integrated effectively, as both banks reflected solid core deposit franchises, with the combined entity having a robust deposit market share throughout attractive markets in Maryland, Delaware, and Virginia. On a pro-forma basis, the company would hold the fourth largest deposit market share in Maryland among Maryland-based banks as well as the third largest market share in the Delmarva Peninsula, which includes counties and all three states mentioned above. With respect to the loan portfolio, we favorably view the increased geographic diversification of the combined company as well as the healthy multi-year NCO trend of both companies. While TCFC reported significantly above-average NPAs from 2017 to 2020, management was able to work down these balances absent any material NCOs. The pro-forma loan portfolio would total approximately $4.1 billion and is projected to remain a commercial centric mix and investor CRE concentrations will be mostly in line with peers. The new management team, led by TCFC’s CEO, Jimmy Burke, is positively viewed by KBRA given the solid track record of both management teams. Additionally, both management teams have operated with capital ratios consistent with peer averages for an extended period of time. However, the pro-forma CET1 ratio at close is expected be below historical levels, though excluding AOCI and interest rate marks, the pro-forma CET1 would be closer to the peer average. We view the pro-forma capital as sufficient and expect capital to build over time with management’s forecasts of a 2.1-year TBV earn back driven by improved profitability (projecting ROA to be ~1.40%) and the accretion of the AOCI day 1 mark.
Rating Sensitivities
As the ratings have been withdrawn following the merger completion, there are no rating sensitivities.
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Methodologies
Disclosures
A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.
Information on the meaning of each rating category can be located here.
Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.
About KBRA
Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.