KBRA Withdraws Ratings for The Community Financial Corporation

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As the ratings have been withdrawn following the merger completion, there are no rating sensitivities.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