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

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Oct 18, 2021, 12:31 ET

MIDDLETOWN, Md., Oct. 18, 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 September 30, 2021 the Company earned year to date net income of $4.758 million or $2.11 per share, the highest for the time period in the history of the Company, with an increase of $2.2 million or 86% compared to September 30, 2020 at $2.560 million or $1.14 per share. Net income for the third quarter was $2.257 million or $1.00 per share, an increase of 153% or $1.4 million compared to second quarter net income of $892 thousand or $0.40 per share. Year over year third quarter net income increased $1.1 million or 88% compared to the third quarter of 2020.

Earnings continued to be bolstered by strong residential mortgage loan activity along with enhanced fee income from PPP loan forgiveness. Earnings were positively impacted during the third quarter by a loan charge-off recovery totaling $540 thousand related to the prior quarter isolated loan charge-off due to a COVID-19 business failure. The Bank entered into a forbearance agreement with the principal of the aforementioned credit charge-off to receive monthly restitution towards the recovery of the charge-off. The recovery also positively impacted the provision expense for the third quarter, resulting in a loan loss provision expense release of $246 thousand. As of September 30, 2021 the Company's credit quality continued to be strong with non-performing assets to total assets at 0.31%, a decrease of 5 basis points from the prior quarter.

The Company remains deeply committed to the communities we serve. We continue to expand our newly formed 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 – 3Q21 vs 2Q21

Net book value and tangible book value per share increased by $0.59 and $0.60, or 2.4% and 2.5%, respectively, per share to $24.82 and $24.09 per share, respectively, in the third quarter, from $24.23 and $23.49, respectively, in the second quarter.
Cash balances increased on a linked quarter basis by 10.3% or $5.7 million. Deposit growth in the third quarter totaled $47.6 million. The bank utilized the new deposit funds to purchase $47.2 million in security investments during the third 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 58.2% of total funding at the bank level as of September 30, 2021.
Gross loans increased on a linked quarter basis by $850 thousand or 0.1% as of September 30, 2021. A net decrease in PPP loans of $13.8 million for the quarter was offset by core loan growth of $14.7 million, contributing to the overall quarterly loan growth when compared to June 30, 2021.
Overall deposits grew $47.6 million, or 6.8% in the third quarter of 2021 compared to the second quarter of 2021. Non-interest-bearing deposit grew $20.3 million and interest-bearing deposits grew $27.3 million. The interest-bearing deposits growth was mainly in low cost money market deposits totaling $14 million and interest-bearing transaction demand deposits totaling $13 million. The Bank's cost of interest-bearing deposits for the second quarter decreased 4 bps to 0.41%.
The Banks normalized margin (excludes impact of PPP loans and fees, FRB Cash and Brokered deposits) decreased 6 basis points to 3.40% in the third quarter of 2021 from 3.46% in the second quarter of 2021.
The loan loss reserve to total loans ratio (excluding PPP loans) increased to 1.10% at September 30, 2021, from 1.08% as of June 30, 2021. Most of the increase was related to core loan growth totaling $14 million, and the addition of a specific reserve for $47 thousand related to one loan relationship.

Quarterly Highlights – 3Q21 vs 3Q20

Net book value per share of $24.82 represents a $1.91, or 7.7% increase over September 30, 2020 book value of $22.91 per share. Tangible book value per share of $24.09 at September 30, 2021 increased by $1.92 or 8% from $22.17 at September 30, 2020.
Year-over-year net loan growth was $15.8 million or 2.9%, which includes a decrease of $46.2 million in PPP loans. Excluding the PPP loans, gross core loan growth was $60.3 million or 10.9% year-over-year.
Deposits grew $110.6 million or 18.8% on a year-over-year basis compared to September 30, 2020. Excluding brokered deposits of $20.2 million as of September 30, 2020, core deposits increased $130.6 million or 18.7% year-over-year. The majority of the core growth was in demand deposits $65.8 million and low interest cost money market $45.9 million and savings deposits $13.4 million. As of September 30, 2021 the Bank had decreased the higher cost brokered deposits balances to only $244 thousand.
As of September 30, 2021, the Bank had reduced overall cost of funds to 0.25%, down from 0.48% at September 30, 2020. This decreased 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 September 30, 2021 totaled $2.65 million (excludes $45 thousand for off-balance sheet and check card loss provision), an increase of $857 thousand compared to $1.80 million through September 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. Loan recoveries through September 30, 2021 of $540 thousand positively impacted the loan loss provision expense.
Non-interest income year-to-date as of September 30, 2021 grew by $450 thousand or 8.9% compared to September 30, 2020. The mortgage activity and secondary sales income increase of $269 thousand along with the security sale gains increases of $196 thousand account for the majority of the increase year-over-year.
Non-interest expense as of September 30, 2021 increased by $648 thousand compared to September 30, 2020. The increase is directly related to the growth of the balance sheet (15.7% year-over-year) as staffing has increased to support the growth, and increased FDIC insurance premiums as deposits increased (18.8% year-over-year).

Dividend

A dividend of $0.04 per share was declared by the Board of Directors on October 18, 2021 for shareholders of record as of October 29, 2021 and payable on November 5, 2021.

Community Heritage Financial, Inc.
Robert E. (BJ) Goetz, Jr.
President & Chief Executive Officer
301-371-305

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

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

Assets
Cash and due from banks		$	55,559	$	49,830	$	43,425	$	28,785	$	15,044
	Total cash and cash equivalents		55,559		49,830		43,425		28,785		15,044

Securities available-for-sale, at fair value			130,431		86,343		61,086		72,439		67,441
Equity securities, at cost			338		338		462		462		462

Loans			570,727		569,877		585,811		558,967		554,851
Less allowance for loan loss			6,071		5,812		8,948		7,480		6,024
	Loans, net		564,655		564,065		576,864		551,486		548,828

Loans held for sale			7,963		8,008		10,717		12,626		21,670
Premises and equipment, net			6,858		7,025		6,529		6,400		6,459
Right-of-use assets			2,417		2,533		2,557		2,667		2,785
Accrued interest receivable			1,738		1,746		2,035		2,199		2,192
Deferred tax assets			2,007		1,873		3,025		2,081		1,796
Bank-owned life insurance			6,443		6,393		6,340		5,280		5,214
Goodwill			1,657		1,657		1,657		1,657		1,657
Intangible assets			3		5		7		9		11
Other Assets			1,715		1,590		1,750		2,090		1,960
	Total Assets	$	781,783	$	731,404	$	716,452	$	688,181	$	675,519

Liabilities and Stockholders' Equity

Liabilties
Deposits:
Non-interest-bearing demand		$	254,058	$	233,757	$	228,946	$	197,297	$	187,972
Interest-bearing			444,488		417,157		405,499		402,262		399,955
	Total Deposits		698,546		650,914		634,445		599,560		587,927

Subordinated debt, net			14,731		14,708		14,686		14,664		14,641
Other borrowings			2,629		4,015		3,719		8,558		10,577
Lease liabilities			2,480		2,591		2,610		2,715		2,823
Accrued interest payable			409		206		426		215		445
Other liabilities			7,099		4,416		7,349		9,509		7,532
	Total Liabilities		725,895		676,850		663,236		635,221		623,946

Stockholders' Equity
Common stock			23		23		23		23		23
Surplus			28,523		28,523		28,523		28,523		28,523
Retained earnings			28,121		25,954		25,152		23,633		22,156
Accumulated other comprehensive income (loss)			(779)		54		(482)		782		870
	Total Stockholders' Equity		55,888		54,554		53,216		52,960		51,572

	Total Liabilities and Stockholders' Equity	$	781,783	$	731,404	$	716,452	$	688,181	$	675,519

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

			Three Months Ended						Nine Months Ended
			September 30,		June 30,		September 30,		September 30,		September 30,
			2021		2021		2020		2021		2020

Interest Income
	Loans, including fees	$	6,407,015	$	6,328,253	$	5,811,942	$	19,241,739	$	16,623,282
	Securities		436,526		347,943		304,912		1,088,144		766,457
	Fed funds sold and other		26,859		5,115		29,246		40,685		139,341
	Total interest income		6,870,400		6,681,311		6,146,099		20,370,568		17,529,080

Interest Expense
	Deposits		427,313		442,650		728,081		1,370,982		2,733,798
	Borrowed funds		-		-		-		947		48,869
	Subordinated debt		238,049		238,049		238,049		714,148		709,356
	Other Interest Expense		45,323		51,071		66,878		167,822		106,766
	Total interest expense		710,686		731,770		1,033,009		2,253,900		3,598,789

Net interest income			6,159,714		5,949,541		5,113,091		18,116,668		13,930,292
Provision for loan losses			(245,988)		1,432,697		844,521		2,652,690		1,796,018
Net interest income after provision for loan losses			6,405,702		4,516,844		4,268,570		15,463,978		12,134,274

Non-interest income
	Service charges on deposits		180,225		181,006		164,660		555,060		448,491
	Earnings bank owned life insurance		40,956		45,307		46,771		137,952		90,314
	Gain sale of fixed assets		-		-		-		1,500		-
	Gain sale of securities		-		-		164,464		196,091		173,721
	Mortage loan income activity		1,252,561		1,313,885		1,973,960		4,026,646		3,929,716
	Other non-interest income		211,864		200,732		155,515		585,771		411,106
	Total non-interest income		1,685,606		1,740,930		2,505,370		5,503,020		5,053,348

Non-interest expense
	Salaries and employee benefits		2,967,511		2,880,755		3,133,762		8,430,445		8,219,404
	Occupancy and equipment		708,358		706,167		694,331		2,091,761		2,057,023
	Legal and professional fees		155,208		169,242		200,451		474,478		529,262
	Advertising		130,244		131,225		96,098		417,594		318,435
	Data processing		544,371		625,055		504,575		1,637,675		1,414,085
	FDIC premiums		93,840		108,963		106,675		317,599		159,155
	Loss sale of securities		-		-		-		17,826		-
	Other intangible amortization		2,083		2,083		2,083		6,250		6,250
	Other		412,142		377,273		413,694		1,008,063		1,050,041
	Total non-interest expense		5,013,757		5,000,763		5,151,169		14,401,691		13,753,155
Income before taxes			3,077,551		1,257,011		1,622,771		6,565,308		3,434,467
Income tax expense			820,160		365,343		421,791		1,807,083		874,233
Net Income		$	$2,257,391	$	$891,668	$	$1,200,980	$	$4,758,225	$	$2,560,234

Basic earnings per share		$	1.00	$	0.40	$	0.53	$	2.11	$	1.14

Community Heritage Financial, Inc. and Subsidiaries
Selected Financial Data

Income Statement Review

		For the Three Months Ended						For theNine Months Ended
		September 30,		June 30,		September 30,		September 30,		September 30,
		2021		2021		2020		2021		2020
		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)

Interest Income	$	6,870,400	$	6,681,311	$	6,146,099	$	20,370,568	$	17,529,080
Interest Expense		710,686		731,770		1,033,009		2,253,900		3,598,789
Net interest income		6,159,714		5,949,541		5,113,091		18,116,668		13,930,292
Provsion expense		(245,988)		1,432,697		844,521		2,652,690		1,796,018
Net interest income after provision	$	6,405,702	$	4,516,844	$	4,268,570	$	15,463,978	$	12,134,274

Non-interest income	$	1,685,606	$	1,740,930	$	2,505,370	$	5,503,020	$	5,053,348
Non-interest expense		5,013,757		5,000,763		5,151,169		14,401,691		13,753,156
Merger expenses		-		-		-		-		-

Yield on interest-earning assets		3.71%		3.85%		3.85%		3.88%		3.94%
Cost of interest-bearing liabilities		0.63%		0.69%		0.97%		0.70%		1.20%
Efficiency ratio		63.91%		65.03%		67.61%		60.97%		72.41%

Balance Sheet Review

		September 30,		June 30,				September 30,
		2021		2021				2020
		(Unaudited)		(Unaudited)				(Unaudited)
(dollars in thousands)
Total assets	$	781,783	$	731,404			$	675,519
Loans, net of reserve		564,655		564,065				548,828
Goodwill & intangibles		1,660		1,661				1,668
Deposits		698,546		650,914				587,927
Shareholder's equity		55,888		54,554				51,572


Asset Quality Review
Non-accrual loans	$	1,471	$	1,656			$	1,246
Trouble debt restructured loans still accruing		963		969				681
Loans 90 days past due still accruing		-		-				294
Foreclosured properties		-		-				-
Total non-performing assets	$	2,434	$	2,625			$	2,221

Non-performing assets to total assets		0.31%		0.36%				0.33%
Non-performing assets to total loans		0.42%		0.46%				0.40%

Summary of Operating Results

		For theThree Months Ended				For the Nine Months Ended
		September 30,		September 30,		September 30,		September 30,
		2021		2020		2021		2020
		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)

Pre-allowance for Loan Loss provision, pre-tax net income	$	2,831,563	$	2,467,292	$	9,217,998	$	5,230,485
Alllowance for loan loss provision, pre-tax		(245,988)		844,521		2,652,690		1,796,018
Tax expense		820,160		421,791		1,807,083		874,233
Net Income	$	2,257,391	$	1,200,980	$	4,758,225	$	2,560,234

(dollars in thousands)
Charge-offs	$	54	$	12	$	4,655	$	49
(Recoveries)		(550)		(9)		(578)		(29)
Net charge-offs	$	(496)	$	3	$	4,077	$	20

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	$	1.00	$	0.53	$	2.11	$	1.14
Dividend declared	$	0.04	$	0.04	$	0.12	$	0.12

Book value per share	$	24.82	$	22.91	$	24.82	$	22.91
Tangible book value per share	$	24.09	$	11.17	$	24.09	$	22.17

Selected Financial Ratios (unaudited)

Return on average assets		1.18%		0.72%		0.87%		0.55%
Return on average equity		15.79%		9.26%		11.38%		6.79%
Allowance for loan losses to total loans		1.06%		1.09%		1.06%		1.09%
Allowance for loan loss to total loans (excluding PPP loans)		1.10%		1.23%		1.10%		1.23%
Non-performing assets to total loans		0.42%		0.40%		0.42%		0.40%
Non-performing assets to total loans (excluding PPP)		0.44%		0.45%		0.44%		0.45%
Net Charge-offs to total loans		-0.09%		0.00%		0.71%		0.00%
Common equity tier 1 (CET1) capital		10.74%		N/A		10.74%		N/A
Tier1 capital		10.74%		N/A		10.74%		N/A
Total risk based capital		11.88%		N/A		11.77%		N/A
Tier-1 leverage ratio		8.86%		N/A		8.86%		N/A
Community bank leverage ratio (bank only)**		N/A		9.24%		N/A		9.24%
Average equity to average assets		7.49%		7.73%		7.65%		8.05%
Tangible Common Equity/Tangible Common Assets		6.95%		7.25%		6.95%		7.25%
Net interest margin (bank only, normalized)*		3.40%		3.52%		3.47%		3.53%
Loans to deposits - (EOP)		81.70%		94.37%		81.70%		94.37%
*Normalized margin excludes impact of PPP loans and related on balance sheet liquidity through Brokered deposits and FHLB Borrowing
**As of September 30, 2021 the bank reverted back to the BASEL III regulatory framework for capital reporting and discontinued the CBLR calculation.