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

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Apr 25, 2022, 17:28 ET

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


Community Heritage Financial, Inc. and Subsidiaries
Consolidated Balance Sheets
(dollars in thousands)

			March, 31		December 31,		September 30,		June 30,		March 31,
			2022		2021		2021		2021		2021
			(Unaudited)		Audited		(Unaudited)		(Unaudited)		(Unaudited)

Assets
Cash and due from banks		$	34,704	$	41,255	$	55,559	$	49,830	$	43,425
	Total cash and cash equivalents		34,704		41,255		55,559		49,830		43,425

Securities available-for-sale, at fair value			143,435		144,019		130,431		86,343		61,086
Equity securities, at cost			406		338		338		338		462

Loans			643,878		610,502		570,727		569,877		585,811
Less allowance for loan loss			6,493		6,500		6,071		5,812		8,948
	Loans, net		637,385		604,002		564,655		564,065		576,864

Loans held for sale			4,044		5,423		7,963		8,008		10,717
Premises and equipment, net			6,674		6,771		6,858		7,025		6,529
Right-of-use assets			2,191		2,301		2,417		2,533		2,557
Accrued interest receivable			2,067		1,971		1,738		1,746		2,035
Deferred tax assets			4,916		2,141		2,007		1,873		3,025
Bank-owned life insurance			6,484		6,475		6,443		6,393		6,340
Goodwill			1,657		1,657		1,657		1,657		1,657
Intangible assets					1		3		5		7
Other Assets			1,598		1,556		1,715		1,590		1,750
	Total Assets	$	845,561	$	817,910	$	781,783	$	731,404	$	716,452

Liabilities and Stockholders' Equity

Liabilities
Deposits:
Non-interest-bearing demand		$	287,579	$	272,400	$	254,058	$	233,757	$	228,946
Interest-bearing			482,651		464,285		444,488		417,157		405,499
	Total Deposits		770,230		736,685		698,546		650,914		634,445

Subordinated debt, net			14,776		14,753		14,731		14,708		14,686
Other borrowings					1,887		2,629		4,015		3,719
Lease liabilities			2,260		2,368		2,480		2,591		2,610
Accrued interest payable			397		190		409		206		426
Other liabilities			6,838		5,072		7,099		4,416		7,349
	Total Liabilities		794,501		760,955		725,895		676,850		663,236

Stockholders' Equity
Common stock			23		23		23		23		23
Surplus			28,523		28,523		28,523		28,523		28,523
Additional PIC restricted stock			29		14
Retained earnings			31,019		29,288		28,121		25,954		25,152
Accumulated other comprehensive income (loss)			(8,533)		(893)		(779)		54		(482)
	Total Stockholders' Equity		51,060		56,955		55,888		54,554		53,216

	Total Liabilities and Stockholders' Equity	$	845,561	$	817,910	$	781,783	$	731,404	$	716,452


Community Heritage Financial, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)

			Three Months Ended
			March 31,		December 31,		March 31
			2022		2021		2021

Interest Income
	Loans, including fees	$	6,362,459	$	6,144,691	$	6,506,470
	Securities		642,558		565,044		303,676
	Fed funds sold and other		14,476		16,586		8,710
	Total interest income		7,019,494		6,726,322		6,818,856

Interest Expense
	Deposits		333,979		383,525		501,019
	Borrowed funds		-		-		947
	Subordinated debt		238,049		238,049		238,049
	Other Interest Expense		32,733		47,266		71,428
	Total interest expense		604,762		668,841		811,444

Net interest income			6,414,732		6,057,481		6,007,412
Provision for loan losses			10,133		426,483		1,465,981
Net interest income after provision for loan losses			6,404,599		5,630,998		4,541,431

Non-interest income
	Service charges on deposits		158,091		179,650		193,829
	Earnings bank owned life insurance		1,018		24,210		51,690
	Gain sale of fixed assets		-		18,000		1,500
	Gain sale of securities		-		-		196,091
	Mortgage loan income activity		790,060		822,280		1,460,199
	Other non-interest income		263,540		232,343		173,176
	Total non-interest income		1,212,710		1,276,483		2,076,484

Non-interest expense
	Salaries and employee benefits		2,950,494		3,016,112		2,582,179
	Occupancy and equipment		769,524		719,872		677,236
	Legal and professional fees		180,696		238,066		150,029
	Advertising		183,204		162,770		156,125
	Data processing		575,433		625,147		468,249
	FDIC premiums		135,583		115,376		114,796
	Loss sale of securities		-		-		17,826
	Loss sale fixed assets		-		816		-
	Other intangible amortization		695		2,083		2,083
	Other		302,693		386,448		218,647
	Total non-interest expense		5,098,322		5,266,691		4,387,169
Income before taxes			2,518,987		1,640,790		2,230,747
Income tax expense			698,285		383,730		621,580
Net Income		$	$1,820,702	$	$1,257,060	$	$1,609,167

Basic earnings per share		$	0.81	$	0.56	$	0.71
Diluted earnings per share		$	0.81	$	0.56	$	0.71


Community Heritage Financial, Inc. and Subsidiaries
Selected Financial Data

Income Statement Review

		For the Three Months Ended
		March 31,		December 31		March 31,
		2022		2021		2021
		(Unaudited)		(Audited)		(Unaudited)

Interest Income	$	7,019,494	$	6,726,322	$	6,818,856
Interest Expense		604,762		668,841		811,444
Net interest income		6,414,732		6,057,481		6,007,412
Provision expense		10,133		426,483		1,465,981
Net interest income after provision	$	6,404,599	$	5,630,998	$	4,541,431

Non-interest income	$	1,212,710	$	1,276,483	$	2,076,484
Non-interest expense		5,098,322		5,266,691		4,387,169
Merger expenses		-		-		-

Yield on interest-earning assets		3.57%		3.45%		4.08%
Cost of interest-bearing liabilities		0.51%		0.56%		0.78%
Efficiency ratio		66.84%		71.81%		54.27%

Balance Sheet Review

		March 31,		March 31,
		2022		2021
		(Unaudited)		(Unaudited)
(dollars in thousands)
Total assets	$	845,561	$	716,452
Loans, net of reserve		637,385		576,864
Goodwill & intangibles		1,657		1,663
Deposits		770,230		634,445
Shareholder's equity		51,060		53,216


Asset Quality Review
Non-accrual loans	$	1,935	$	952
Trouble debt restructured loans still accruing		755		975
Loans 90 days past due still accruing		-		-
Foreclosured properties		-		-
Total non-performing assets	$	2,690	$	1,927

Non-performing assets to total assets		0.32%		0.27%
Non-performing assets to total loans		0.42%		0.33%

Summary of Operating Results

		For the Three Months Ended
		March 31,		March 31,
		2022		2021
		(Unaudited)		(Unaudited)

Pre-allowance for Loan Loss provision, pre-tax net income	$	2,529,120	$	3,696,728
Allowance for loan loss provision, pre-tax		10,133		1,465,981
Tax expense		698,285		621,580
Net Income	$	1,820,702	$	1,609,167

(dollars in thousands)
Charge-offs	$	-	$	18
(Recoveries)		(4)		(13)
Net charge-offs	$	(4)	$	5

Per Common Share Data

Common shares outstanding		2,251,320		2,251,320
Weighted average shares outstanding		2,251,320		2,251,320

Basic earnings per share	$	0.81	$	0.71
Diluted earnings per share	$	0.81	$	0.71
Dividend declared	$	0.04	$	0.04

Book value per share	$	22.68	$	23.64
Tangible book value per share	$	21.94	$	22.90

Selected Financial Ratios (unaudited)

Return on average assets		0.89%		0.91%
Return on average equity		13.16%		11.55%
Allowance for loan losses to total loans		1.01%		1.53%
Allowance for loan loss to total loans (excluding PPP loans)		1.01%		1.69%
Non-performing assets to total loans		0.42%		0.33%
Non-performing assets to total loans (excluding PPP)		0.42%		0.36%
Net Charge-offs to total loans		0.00%		0.00%
Common equity tier 1 (CET1) capital		10.21%		N/A
Tier1 capital		10.21%		N/A
Total risk based capital		11.26%		N/A
Tier-1 leverage ratio		8.84%		N/A
Community bank leverage ratio (bank only)**		N/A		9.21%
Average equity to average assets		6.75%		7.89%
Tangible Common Equity/Tangible Common Assets		5.85%		6.77%
Net interest margin (bank only)		3.35%		3.65%
Loans to deposits - (EOP)		83.60%		92.33%

**As of September 30, 2021 the bank reverted back to the BASEL III regulatory framework for capital reporting
and discontinued the CBLR calculation.
**As of March 31, 2020 the bank adopted the community bank leverage ratio (CBLR) for capital reporting