Community Heritage Financial, Inc. Reports Earnings for the Second Quarter of 2021

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Jul 19, 2021, 17:43 ET

MIDDLETOWN, Md., July 19, 2021 /PRNewswire/ -- Community Heritage Financial, Inc. ("the Company") (OTC Pink: CMHF), the parent company for Middletown Valley Bank ("MVB" or the "Bank") and Millennium Financial Group, Inc. ("Mlend"), announced today that for the period ending June 30, 2021 the Company earned year to date net income of $2.501 million or $1.11 per share, the highest for the time period in the history of the Company, with an increase of $1.142 million or 84% compared to June 30, 2020 at $1.359 million or $0.60 per share. Net income for the second quarter was $892 thousand or $0.40 per share, a decrease of 44.6% or $718 thousand compared to first quarter net income of $1.609 million or $0.71 per share. Year over year second quarter net income increased $43 thousand or 5% compared to the second quarter of 2020.

The net income of $2.501 million for the first six months of 2021 represents the best first half earnings performance in the history of the Company. Earnings continued to be bolstered by strong residential mortgage loan activity along with enhanced fee income from PPP loan forgiveness. Second quarter earnings were negatively impacted by an isolated loan charge-off related to a COVID-19 related business failure. While collection negotiations are ongoing between the borrower, the bank, and legal counsels, due to ongoing uncertainties in judicial proceedings related to COVID-19 which affect the timing of collection, the decision was made to charge-off the entire loan balance and treat collection as a recovery. Provision expense was increased in the first and second quarter specific to this credit. While the country and the economy continue to transition through the post-pandemic recovery, the Company continues to thoroughly evaluate the loan portfolio on a loan-by-loan basis to identify any current or future impacts to borrowers. As of June 30, 2021, credit quality was strong with non-performing assets to total assets at 0.36% with no additional COVID-19 related credit issues identified. While the Company added an additional $1.4 million to provision expense in the second quarter to absorb the charge-off as noted above, the Company recorded positive earnings of $892 thousand for the second quarter of 2021, which exceeded earnings of $849 thousand for the second quarter of 2020.

The Company remains deeply committed to the communities we serve. The grand opening of the Bank's Waynesboro branch was held on May 21, 2021. This is the Banks first location in Franklin County, Pennsylvania and the eighth full-service branch location for the Bank. Since the Waynesboro branch grand opening it has contributed $2.51 million in new deposits to the Banks balance sheet; $967 thousand in non-interest bearing deposits and $1.54 million in interest bearing deposits. We look forward to expanding our footprint in the Franklin County, PA market and continuing to grow in the Maryland market while providing our customers with "Absolutely Exceptional Experiences".

Quarterly Highlights – 2Q21 vs 1Q21

Net book value and tangible book value per share both increased by $0.59 per share or 2.5% to $24.23 and $23.49 per share, respectively, in the second quarter, from $23.64 and $22.90, respectively, in the first quarter.
Cash balances increased on a linked quarter basis by 12.9% or $6.4 million. In the second quarter of 2021 the PPP loan payoffs due to SBA forgiveness totaled $27.8 million. This along with $16.5 million in deposit growth contributed to the cash balance increase. The bank deployed a portion of the funds to purchase $24 million in security investments during the second quarter. The bank also continued to strengthen off-balance sheet contingency funding sources (FHLB and FRB discount window borrowing capacity), keeping the overall contingency funding position strong at approximately 51.4% of total funding at the bank level as of June 30, 2021.
Gross loans decreased on a linked quarter basis by $15.9 million or 2.7% as of June 30, 2021. A net decrease in PPP loans of $25 million for the quarter was partially offset by core loan growth of $9.1 million.
Overall deposits grew $16.5 million, or 2.5% in the second quarter of 2021 compared to the first quarter of 2021. The deposit growth for the second quarter was mainly due to interest-bearing deposit growth of $11.7 million. Contributing to this growth is money market deposit growth of $10.2 million. The cost of interest-bearing deposits for the second quarter decreased 7 bps to 0.45%.
The Banks normalized margin (excludes impact of PPP loans and fees, FRB Cash and Brokered deposits) decreased 11 basis points to 3.46% in the second quarter of 2021 from 3.57% in the first quarter of 2021. Accounting for the difference was the interest write-offs related to the isolated charge-off along with continued market pressure on earning assets.
The loan loss reserve to total loans ratio (excluding PPP loans) decreased to 1.08% at June 30, 2021, from 1.69% as of March 31, 2021. Most of the decrease was related to the aforementioned isolated charge-off along with reevaluation of qualitative COVID-19 factors used in the reserve calculation. The total charge-off of $4.5 million utilized $3.1 million of specific reserve, and an additional $1.4 million of second quarter provision related to this credit. All future collections related to this credit will be treated as recovery as collection efforts are active and ongoing.

Quarterly Highlights – 2Q21 vs 2Q20

Net book value per share of $24.23 represents a $1.80, or 8% increase over June 30, 2020 book value of $22.43 per share. Tangible book value per share of $23.49 at June 30, 2021 increased by $1.80 or 8.3% from $21.69 at June 30, 2020.
Year-over-year net loan growth was $44.7 million or 8.6%, which includes a decrease of $32.1 million in PPP loans. Excluding the PPP loans, gross core loan growth was $76.1 million or 16.5% year-over-year.
Deposits grew $56 million or 9.4% on a year-over-year basis compared to June 30, 2020. Excluding brokered deposits of $35.2 million as of June 30, 2020, core deposits increased $91 million or 16.3% year-over-year. The majority of the core growth was in demand deposits and low interest cost money market and savings deposits.
As of June 30, 2021, the Bank had reduced overall cost of funds to 0.28%, down from 0.56% at June 30, 2020. This decrease results from the further rate reductions on numerous deposit account types due to historically low Fed rates.
Year-to-date loan loss provision expense through June 30, 2021 totaled $2.9 million (excludes $40 thousand for off-balance sheet and check card loss provision), an increase of $1.95 million compared to $951 thousand through June 30, 2020. Loan growth and the isolated charge-off combined with economic metrics due to the pandemic (unemployment, GDP and COVID factor) account for the increased provision expense.
Non-interest income year-to-date as of June 30, 2021 grew by $1.27 million or 49.8% compared to June 30, 2020. The mortgage activity and secondary sales income increase of $818 thousand along with the security sale gains increase of $187 thousand account for the majority of the increase year-over-year.
Non-interest expense as of June 30, 2021 increased by $786 thousand compared to June 30, 2020. The increase is directly related to the growth of the balance sheet (8.6% year-over-year) as staffing has increased to support the growth, and increased FDIC insurance premiums as deposits increased (9.4% year-over-year).

Dividend

A dividend of $0.04 per share was declared by the Board of Directors on June 16, 2021 for shareholders of record as of July 30, 2021 and payable on August 6, 2021.

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

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

			June 30,		March 31,		December 31,		September 30,		June 30,
			2021		2021		2020		2020		2020
			(Unaudited)		(Unaudited)		(Audited)		(Unaudited)		(Unaudited)

Assets
Cash and due from banks		$	49,830	$	43,425	$	28,785	$	15,044	$	49,706
	Total cash and cash equivalents		49,830		43,425		28,785		15,044		49,706

Securities available-for-sale, at fair value			86,343		61,086		72,439		67,441		69,518
Equity securities, at cost			338		462		462		462		462

Loans			569,877		585,811		558,967		554,851		524,512
Less allowance for loan loss			5,812		8,948		7,480		6,024		5,179
	Loans, net		564,065		576,864		551,486		548,828		519,333

Loans held for sale			8,008		10,717		12,626		21,670		13,525
Premises and equipment, net			7,025		6,529		6,400		6,459		6,612
Right-of-use assets			2,533		2,557		2,667		2,785		2,900
Accrued interest receivable			1,746		2,035		2,199		2,192		2,003
Deferred tax assets			1,873		3,025		2,081		1,796		978
Bank-owned life insurance			6,393		6,340		5,280		5,214		5,027
Goodwill			1,657		1,657		1,657		1,657		1,657
Intangible assets			5		7		9		11		13
Other Assets			1,590		1,750		2,090		1,960		1,740
	Total Assets	$	731,404	$	716,452	$	688,181	$	675,519	$	673,475

Liabilities and Stockholders' Equity

Liabilties
Deposits:
Non-interest-bearing demand		$	233,757	$	228,946	$	197,297	$	187,972	$	181,155
Interest-bearing			417,157		405,499		402,262		399,955		413,743
	Total Deposits		650,914		634,445		599,560		587,927		594,897

Subordinated debt, net			14,708		14,686		14,664		14,641		14,619
Other borrowings			4,015		3,719		8,558		10,577		5,784
Lease liabilities			2,591		2,610		2,715		2,823		2,934
Accrued interest payable			206		426		215		445		235
Other liabilities			4,416		7,349		9,509		7,532		4,507
	Total Liabilities		676,850		663,236		635,221		623,946		622,976

Stockholders' Equity
Common stock			23		23		23		23		23
Surplus			28,523		28,523		28,523		28,523		28,523
Retained earnings			25,954		25,152		23,633		22,156		21,045
Accumulated other comprehensive income (loss)			54		(482)		782		870		908
	Total Stockholders' Equity		54,554		53,216		52,960		51,572		50,499

	Total Liabilities and Stockholders' Equity	$	731,404	$	716,452	$	688,181	$	675,519	$	673,475

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

			Three Months Ended						Six Months Ended
			June 30,		March 31,		June 30,		June 30,		June 30,
			2021		2021		2020		2021		2020

Interest Income
	Loans, including fees	$	6,328,253	$	6,506,470	$	5,497,442	$	12,834,724	$	10,811,340
	Securities		347,943		303,676		250,044		651,618		461,545
	Fed funds sold and other		5,115		8,710		31,911		13,825		110,096
	Total interest income		6,681,311		6,818,856		5,779,397		13,500,167		11,382,981

Interest Expense
	Deposits		442,650		501,019		911,388		943,669		2,005,717
	Borrowed funds		0		947		44,076		947		48,869
	Subordinated debt		238,049		238,049		233,258		476,098		471,307
	Other Interest Expense		51,071		71,428		25,780		122,499		39,889
	Total interest expense		731,770		811,444		1,214,502		1,543,214		2,565,781

Net interest income			5,949,541		6,007,412		4,564,896		11,956,953		8,817,200
Provision for loan losses			1,432,697		1,465,981		628,360		2,898,678		951,497
Net interest income after provision for loan losses			4,516,844		4,541,431		3,936,536		9,058,275		7,865,703

Non-interest income
	Service charges on deposits		181,006		193,829		111,808		374,835		283,831
	Earnings bank owned life insurance		45,307		51,690		18,530		96,997		43,543
	Gain sale of fixed assets		0		1,500		0		1,500		0
	Gain sale of securities		0		196,091		0		196,091		9,257
	Mortage loan income activity		1,313,885		1,460,199		1,244,244		2,774,085		1,955,756
	Other non-interest income		200,732		173,176		128,848		373,907		255,591
	Total non-interest income		1,740,930		2,076,484		1,503,429		3,817,414		2,547,978

Non-interest expense
	Salaries and employee benefits		2,880,755		2,582,179		2,567,085		5,462,934		5,085,642
	Occupancy and equipment		706,167		677,236		670,147		1,383,404		1,362,692
	Legal and professional fees		169,242		150,029		154,206		319,270		328,811
	Advertising		131,225		156,125		92,306		287,350		222,337
	Data processing		625,055		468,249		480,667		1,093,304		909,511
	FDIC premiums		108,963		114,796		27,184		223,759		52,480
	Loss sale of securities		0		17,826		0		17,826		0
	Other intangible amortization		2,083		2,083		2,083		4,167		4,167
	Other		377,273		218,647		294,466		595,921		636,347
	Total non-interest expense		5,000,763		4,387,169		4,288,143		9,387,934		8,601,986
Income before taxes			1,257,011		2,230,747		1,151,822		3,487,756		1,811,695
Income tax expense			365,343		621,580		302,945		986,923		452,442
Net Income		$	$891,668	$	$1,609,167	$	$848,877	$	$2,500,833	$	$1,359,253

Basic earnings per share		$	0.40	$	0.71	$	0.38	$	1.11	$	0.60

Community Heritage Financial, Inc. and Subsidiaries
Selected Financial Data

Income Statement Review

		For the Three Months Ended						For theSix Months Ended
		June 30,		March 31,		June 30,		June 30,		June 30,
		2021		2021		2020		2021		2020
		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)

Interest Income	$	6,681,311	$	6,818,856	$	5,779,397	$	13,500,167	$	11,382,981
Interest Expense		731,770		811,444		1,214,502		1,543,214		2,565,781
Net interest income		5,949,541		6,007,412		4,564,896		11,956,953		8,817,200
Provsion expense		1,432,697		1,465,981		628,360		2,898,678		951,497
Net interest income after provision	$	4,516,844	$	4,541,431	$	3,936,536	$	9,058,275	$	7,865,703

Non-interest income	$	1,740,930	$	2,076,484	$	1,503,429	$	3,817,414	$	2,547,978
Non-interest expense		5,000,763		4,387,169		4,288,143		9,387,934		8,601,986

Yield on interest-earning assets		3.85%		4.08%		3.66%		3.96%		3.99%
Cost of interest-bearing liabilities		0.69%		0.78%		1.14%		0.73%		1.32%
Efficiency ratio		65.03%		54.27%		70.66%		59.51%		75.65%

Balance Sheet Review

		June 30,		March 31,		June 30,
		2021		2021		2020
		(Unaudited)		(Unaudited)		(Unaudited)
(dollars in thousands)
Total assets	$	731,404	$	716,452	$	673,475
Loans, net of reserve		564,065		576,864		519,333
Goodwill & intangibles		1,661		1,663		1,670
Deposits		650,914		634,445		594,897
Shareholder's equity		54,554		53,216		50,499

Asset Quality Review
Non-accrual loans	$	1,656	$	952	$	1,319
Trouble debt restructured loans still accruing		969		975		686
Loans 90 days past due still accruing		-		-		180
Foreclosured properties		-		-		-
Total non-performing assets	$	2,625	$	1,927	$	2,185

Non-performing assets to total assets		0.36%		0.27%		0.32%
Non-performing assets to total loans		0.45%		0.33%		0.42%

Summary of Operating Results

		For theThree Months Ended				For the Six Months Ended
		June 30,		June 30,		June 30,		June 30,
		2021		2020		2021		2020
		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)

Pre-allowance for Loan Loss provision, pre-tax net income	$	2,689,709	$	1,780,182	$	6,386,436	$	2,763,192
Alllowance for loan loss provision, pre-tax		1,432,697		628,360		2,898,678		951,497
Tax expense		365,343		302,945		986,923		452,442
Net Income	$	$891,669	$	$848,877	$	$2,500,835	$	$1,359,253

(dollars in thousands)
Charge-offs	$	4,583	$	18	$	4,601	$	38
(Recoveries)		(16)		(10)		(29)		(19)
Net charge-offs	$	4,567	$	8	$	4,573	$	19

Per Common Share Data

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

Basic Earnings per share	$	0.40	$	0.38	$	1.11	$	0.60
Dividend declared	$	0.04	$	0.04	$	0.08	$	0.08

Book value per share	$	24.23	$	22.43	$	24.23	$	22.43
Tangible book value per share	$	23.49	$	21.69	$	23.49	$	21.69

Selected Financial Ratios (unaudited)

Return on average assets		0.49%		0.51%		0.71%		0.45%
Return on average equity		6.50%		6.79%		9.12%		5.51%
Allowance for loan losses to total loans		1.02%		0.99%		1.02%		0.99%
Allowance for loan loss to total loans (excluding PPP loans)		1.08%		1.12%		1.08%		1.12%
Non-performing assets to total loans		0.45%		0.42%		0.45%		0.42%
Non-performing assets to total loans (excluding PPP)		0.49%		0.47%		0.49%		0.47%
Net Charge-offs to total loans		0.80%		0.00%		0.80%		0.00%
Community bank leverage ratio (bank only)**		8.99%		9.13%		8.99%		9.13%
Average equity to average assets		7.58%		7.50%		7.73%		8.24%
Net interest margin (bank only, normalized)*		3.46%		3.44%		3.52%		3.53%
Loans to deposits - (EOP)		87.55%		88.17%		87.55%		88.17%
*Normalized margin excludes impact of PPP loans and related on balance sheet liquidity through Brokered deposits and FHLB Borrowing.
**As of March 31, 2020 the bank adopted the community bank leverage ratio (CBLR) for capital reporting.