Community Heritage Financial, Inc. Reports Earnings for the First Quarter of 2022

MIDDLETOWN, Md., April 25, 2022 /PRNewswire/ -- Community Heritage Financial, Inc. ("the Company") (OTC PK: CMHF), the parent company of Middletown Valley Bank ("MVB" or the "Bank"), announced today that for the three months ended March 31, 2022 the Company earned net income of $1.82 million or $0.81 per share, an increase of $212 thousand or 13.1% compared to net income of $1.61 million or $0.71 per share for the three months ended March 31, 2021. First quarter 2022 net income increased $564 thousand or 44.8% compared to fourth quarter 2021 net income of $1.26 million or $0.56 per share.

The Company experienced another strong quarter of balance sheet growth driven by core deposit growth of $33.5 million and core (excludes Paycheck Protection Program ("PPP") loans) loan growth of $43.1 million. Total PPP loan balances were $3.6 million at March 31, 2022, down from $13.3 million at December 31, 2021, with $9.7 million of such loans forgiven during the first quarter. As a result of strong core loan growth for the past two quarters and shifting excess cash to higher-yielding assets, interest income for the quarter increased $293 thousand compared to the fourth quarter of 2021. While total deposits grew by $33.5 million, interest expense decreased by $64 thousand on a quarter-over-quarter basis, resulting in an overall increase of $357 thousand in net interest income. The provision for loan losses for the first quarter of 2022 totaled $10 thousand, a decrease of $416 thousand from $426 thousand for the fourth quarter of 2021. The decreased provision resulted from lower unemployment rates and improved loan loss history, both of which are key metrics used in the loan loss reserve calculation. Improved margin income, lower provision expense and stable operating expenses were the main contributors to the increase in net income from $1.26 million in the fourth quarter of 2021 to $1.82 million in the first quarter of 2022.            

To further create operational efficiencies and better utilize the capital and funding capabilities of the Company for current and future growth, effective March 1, 2022, Millennium Financial Group, Inc., formerly a subsidiary of the Company, became a wholly-owned subsidiary of MVB. 

Subsequent Events:

Management and the Board of Directors of both the Company and the Bank recognize the impact that inflation, recent geopolitical events, and supply chain issues are having on economic markets and interest rates. With the recent rapid increase in interest rates, the banking industry has been hit hard with erosion to security portfolio values, which has resulted in a direct impact to tangible equity values on the balance sheet as related to our available-for-sale ("AFS") security portfolio. In an effort to preserve tangible common equity, the MVB Board of Directors approved for up to 75% of the principal balance of the AFS security portfolio at the Bank be moved to a held-to-maturity ("HTM") designation effective April 1, 2022. To maintain on-balance sheet liquidity, over the next several quarters we expect management to take measures to build the AFS portfolio position back to a level of at least 7.0% of assets. We anticipate that this will be accomplished through the reinvestment of security portfolio cashflows and strategic investment of available cash balances at current market rates.   

Quarterly Highlights – 1Q22 vs 4Q21

• Tangible book value per share decreased by $2.62 or 10.7% to $21.94 per share at March 31, 2022 from $24.56 at December 31, 2021. The tangible book value decrease is due to an increase in the accumulated other comprehensive loss of $8.55 million at March 31, 2022 from $893 thousand at December 31, 2021.
• Cash balances decreased on a linked-quarter basis by 15.9% or $6.6 million. Deposit growth in the first quarter totaled $33.5 million. The Bank utilized the new deposit funds to fund the strong core loan growth of $43.1 million and to purchase $12.9 million in security investments.
• The Bank also continued to strengthen off-balance sheet contingency funding sources (Federal Home Loan Bank and Federal Reserve Bank discount window borrowing capacity), keeping the overall contingency funding position strong at approximately 54.1% of total funding at the Bank level at March 31, 2022.
• Gross loans increased by $33.4 million or 5.5% during the quarter ended March 31, 2022. A net decrease in PPP loans of $9.7 million during the quarter resulted in core loan growth of $43.1 million. PPP forgiveness during the first quarter generated interest and fee income of $320 thousand compared to $254 thousand for the fourth quarter of 2021. At March 31, 2022, the Bank has $92 thousand in remaining unamortized PPP fee income on the remaining $3.6 million in PPP principal balances.
• Overall deposits grew $33.5 million, or 4.6%, during the first quarter of 2022. Non-interest-bearing deposits grew $15.2 million and interest-bearing deposits grew $18.3 million. The interest-bearing deposit growth was mainly in low-cost money market deposits of $8.9 million and savings accounts of $5.3 million. The Bank's cost of interest-bearing deposits for the first quarter compared to the fourth quarter of 2021 decreased 7 basis points to 0.28%.
• The Bank's net interest margin increased 15 basis points to 3.35% in the first quarter of 2022 from 3.20% in the fourth quarter of 2021.
• Based on loan growth and current economic metrics used in the calculation, the reserve to total loans ratio was 1.01% at March 31, 2022, down 0.08% from 1.09% at December 31, 2021. The decrease in the reserve to total loans coincides with the reduction in the provision for loan losses by $416 thousand to $10 thousand for the first quarter of 2022 from $426 thousand for the fourth quarter of 2021.

Quarterly Highlights – 1Q22 vs 1Q21

• Tangible book value per share of $21.94 at March 31, 2022 decreased by $0.96 or 4.2% from $22.90 at March 31, 2021. The tangible book value decrease is due to an increase in the accumulated other comprehensive loss of $8.55 million at March 31, 2022 from $482 thousand at March 31, 2021.
• Quarter-over-quarter net loan growth was $60.5 million or 10.5%, which includes a decrease of $53.1 million in PPP loans.
• Excluding PPP loans, gross core loan growth was $111.2 million or 21% quarter-over-quarter. PPP forgiveness generated interest and fee income of $320 thousand during the first quarter of 2022 compared to $961 thousand during the first quarter of 2021.
• Deposits grew $135.8 million or 21.4% during the 12 months ended March 31, 2022. Excluding brokered deposits of $276 thousand and $1.7 million at March 31, 2022 and March 31, 2021, respectively, core deposits increased $137.2 million or 21.7% at March 31, 2022 compared to March 31, 2021. The majority of the core growth was in demand deposits ($58.6 million), low-cost money market deposits ($45.7 million), savings deposits ($14.2 million) and NOW accounts ($3.0 million).
• For the three months ended March 31, 2022, the Bank's overall cost of funds decreased to 0.19% from 0.32% for the three months ended March 31, 2021. This decrease resulted from the further rate reductions on numerous deposit account types due to historically low interest rates.
• The loan loss provision for the quarter ended March 31, 2022 was $10 thousand compared to $1.5 million for the quarter ended March 31, 2021. This decrease is mainly due to the decrease in the unemployment and loan loss economic factors used in the reserve calculation.
• Non-interest income for the quarter ended March 31, 2022 decreased by $864 thousand or 41.6% compared to the quarter ended March 31, 2021. The mortgage activity and secondary sales income decrease of $670 thousand, along with the security sale gains decrease of $196 thousand, accounted for the majority of the decrease.
• Non-interest expense during the quarter ended March 31, 2022 increased by $711 thousand compared to the quarter ended March 31, 2021. The increase is directly related to the growth of the balance sheet (18%) as staffing has increased to support such growth. Salary and benefits expense during the first quarter of 2022 increased 14.3% and the opening of a new branch in Franklin County, PA to expand our market area resulted in a 13.6% increase in occupancy and equipment expense compared to the first quarter of last year.

Dividend

A dividend of $0.04 per share was declared by the Board of Directors on April 15, 2022 for stockholders of record as of April 29, 2022 and payable on May 6, 2022.

Community Heritage Financial, Inc.
Robert E. (BJ) Goetz, Jr.
President & Chief Executive Officer
301-371-3055

SOURCE Community Heritage Financial, Inc.