MIDDLETOWN, Md., April 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 quarter ended March 31, 2021, the Company earned net income of $1.609 million or $0.71 per share, an increase of 2.7% or $42 thousand compared to net income of $1.567 million or $0.70 per share for the fourth quarter of 2020. Net income for the quarter ended March 31, 2021 as compared to the quarter ended March 31, 2020 increased by $1.099 million from $510 thousand and earnings per share increased $0.48 per share from $0.23 per share in the first quarter of 2020 to $0.71 per share in the first quarter of 2021.
Net income of $1.609 million for the first quarter of 2021 was the highest recorded quarterly income in the history of the Company. Strong residential mortgage activity, lower cost of funds, controlled operating expenses and fee income associated with the Paycheck Protection Plan ("PPP") loan program were the main contributors to the record quarterly earnings performance. In addition to the strong earnings performance, the Company also bolstered the loan loss reserve position by adding a $1.35 million provision during the first quarter to raise the reserve ratio to a level of 1.69% of total loans (Bank level excluding PPP loans). While overall credit quality remains strong at the Bank, with non-performing assets to total assets at 0.27% as of March 31, 2021, the Company recognizes the continued impact of the COVID-19 pandemic to the economy and our customer base, especially our commercial business customers. The Company continues to evaluate the entire loan portfolio on a loan-by-loan basis to identify any potential issues related to supply chain, market disruption, material shortages, etc., that could have short-term or long-term impacts on customer cashflows and continued operations. To date, the Company has completed a thorough review of the portfolio and has identified a specific loan customer that has been severely impacted by the pandemic. The Company continues to meet regularly with this customer to evaluate current conditions and map out long-term solutions for the customer and the Bank. The Company has taken action to strengthen the reserve position with respect to this customers loan over the past two quarters and the amount of such current provision is adequate to absorb the majority of any loss that may result from this COVID-19-related credit issue.
The Company remains deeply committed to the communities we serve. Mlend and MVB continue to support the local economy through residential mortgage loans to local homeowners and nearly $100 million via the Paycheck Protection Plan, ("PPP" and "PPP2") to local small business owners. We also look forward to serving the community in new markets, with the planned opening of a new branch location in Franklin County, Pennsylvania, scheduled for late May 2021. While the country and the world make progress to move beyond the pandemic, we continue to place the physical and financial health and safety of our customers and employees as our highest priority and strive to provide customers with "Absolutely Exceptional Experiences".
Quarterly Highlights – 1Q21 vs 4Q21
Net book value per share increased to $23.64 per share in the first quarter, up $0.12 per share, or .51% compared to $23.52 per share in the fourth quarter of 2020. Tangible book value per share in the first quarter increased by $0.12 or .53% to $22.90 per share compared to $22.78 at December 31, 2020.
Cash balances increased on a linked quarter basis by 33.7% or $14.6 million. In the first quarter of 2021 the PPP loan payoffs due to SBA forgiveness totaled $26 million. This along with $34.9 million in deposit growth and the sale of $7 million in investment securities added to the cash increase. The bank deployed a portion of the funds to fund core loan growth for the period. 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 48% of total funding at the bank level as of March 31, 2021.
Net loans grew on a linked quarter basis by $25.4 million as of March 31, 2021. At the end of the first quarter the bank had a total of $56.7 million in PPP loans on the balance sheet, a net increase from new PPP-2 loans totaling $32.5 million and PPP loan SBA forgiveness totaling $26.0 million. Gross core loan growth totaled $20.2 million for the first quarter. The majority of the core growth for the first quarter was from $19.5 million in commercial real estate and C&I loans.
Overall deposits grew $34.9 million, or 5.5% in the first quarter of 2021 compared to the fourth quarter of 2020. The deposit growth for the first quarter was mainly due to non-interest-bearing demand deposit growth of $31.6 million, money market deposit growth of $4.0 million and the retirement of $8.6 million in brokered deposits.
The Banks normalized margin (excludes impact of PPP loans and fees, FRB Cash and Brokered deposits) decreased 9 basis points to 3.57% in the first quarter of 2021 from 3.66% in the fourth quarter of 2020. This decrease is due to the continued market pressure on rates.
The loan loss reserve to total loans ratio (excluding PPP loans) increased to 1.69% at March 31, 2021, up from 1.47% as of December 31, 2020. While credit quality metrics remained strong during the first quarter of 2021, the Company continued to increase the reserve position to absorb the majority of any loss that may be incurred due to a commercial loan that has adverse COVID-19-related credit issues.
Quarterly Highlights – 1Q21 vs 1Q20
Net book value per share of $23.64 represents a $1.76 or 8% increase over March 31, 2020 book value of $21.88 per share. Tangible book value per share of $22.90 at March 31, 2021 increased by $1.77 or 8.4% from $21.13 at March 31, 2020.
Year-over-year net loan growth was $131.1 million or 29.4%, which includes $56.7 million in PPP loans. Excluding the PPP loans, gross core loan growth was $78.1 million or 17.3% year-over-year.
Deposits grew $114.8 million or 22.1% on a year-over-year basis compared to March 31, 2020. Excluding brokered deposits of $47.0 million as of March 31, 2020, core deposits increased $161.8 million or 34.3% year-over-year. Most of the growth was in demand deposits ($95 million) and low interest cost money market and savings deposits ($54 million).
As of March 2021 the Bank had reduced overall cost of funds to 0.32%, down from 0.95% in March of 2020. This decrease results from the rate reductions on numerous deposit account types due to historically low Fed rates.
Year-to-date loan loss provision expense through March 31, 2021 totaled $1.47 million (excludes $122 thousand for off-balance sheet and check card loss provision), an increase of $1.14 million compared to $323 thousand through March 31, 2020. Loan growth and economic metrics due to the pandemic (unemployment, GDP and COVID factor) long lasting impacts on the local economy and the Banks commercial clients account for the increased provision expense.
Non-interest income year-to-date as of March 31, 2021 grew by $1.03 million compared to March 31, 2020. The mortgage activity and secondary sales income increase of $748 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 March 31, 2021 increased by $73 thousand compared to March 31, 2020. The increase is directly related to the growth of the balance sheet (15.2% year-over-year) as staffing has increased, and increased FDIC insurance premiums as deposits increased (22.1% year-over-year).
A dividend of $0.04 per share was declared by the Board of Directors on April 16, 2021 for shareholders of record as of April 30, 2021 and payable on May 7, 2021.