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

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.

 

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SOURCE Community Heritage Financial, Inc.

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

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