Community Heritage Financial, Inc. Reports Record Earnings for the Year Ending December 31, 2021

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Jan 24, 2022, 13:55 ET

MIDDLETOWN, Md., Jan. 24, 2022 /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 December 31, 2021 the Company earned year to date net income of $6.015 million or $2.67 per share, record income for the Company, and an increase of $1.9 million or 45.7% compared to December 31, 2020 at $4.127 million or $1.83 per share. Net income for the fourth quarter was $1.257 million or $0.56 per share, a decrease of $1.0 million or 44.3% compared to the third quarter net income of $2.257 million or $1.00 per share. Year over year fourth quarter net income decreased $310 thousand or 19.8% compared to the fourth quarter of 2020.

The fourth quarter was highlighted by $43.7 million in core loan growth, which bolstered the earning asset base for future earnings. The loan growth did require a provision contribution to the loan loss reserve of $426 thousand for the quarter, an increase of $672 thousand compared to the third quarter of 2021. Earnings for the fourth quarter were also impacted by the volume of PPP loan forgiveness when compared to the third quarter. Principal forgiveness for the fourth quarter was $4.6 million with $255 thousand in realized interest and fee income compared to principal forgiveness of $13.8 million and $698 thousand of interest and fee income in the third quarter. The additional provision expense and PPP income reduction accounted for most of the quarter over quarter variance.

While 2021 posed many challenges brought on by the continued impacts of COVID-19 to the economy and overall business activity in the banking sector, the company continued to grow customers and serve the banking needs of the markets we serve. For the year, the company posted record earnings, record dollar growth in deposits and record dollar growth in core loans balances while maintaining strong credit quality metrics.

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 continue to grow in the Maryland market while providing our customers with "Absolutely Exceptional Experiences".

Quarterly Highlights – 4Q21 vs 3Q21

Tangible book value per share increased by $0.47 or 2% to $24.56 per share at December 31, 2021 from $24.09 as of September 30, 2021.
Cash balances decreased on a linked quarter basis by 34.5% or $14.3 million. Deposit growth in the fourth quarter totaled $38 million. The bank utilized the new deposit funds to purchase $19.8 million in security investments and grow loan balances during the fourth 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 55.8% of total funding at the bank level as of December 31, 2021.
Gross loans increased on a linked quarter basis by $39.6 million or 6.5% as of December 31, 2021. A net decrease in PPP loans of $4.6 million for the quarter resulted in core loan growth of $43.7 million for the fourth quarter.
Overall deposits grew $38 million, or 5.2% in the fourth quarter of 2021 compared to the third quarter of 2021. Non-interest-bearing deposit grew $18.2 million and interest-bearing deposits grew $19.8 million. The interest-bearing deposits growth was mainly in low-cost money market deposits totaling $14.6 million. The Bank's cost of interest-bearing deposits for the fourth quarter decreased 6 bps to 0.35%.
The Banks normalized margin (excludes impact of PPP loans and fees, FRB Cash and Brokered deposits) decreased 12 basis points to 3.28% in the fourth quarter of 2021 from 3.40% in the third quarter of 2021.
Based on loan growth and current economic metrics used in the calculation, the reserve to total loans ratio was 1.09% at December 31, 2021, down .01% from 1.10% as of September 30, 2021.

Quarterly Highlights – 4Q21 vs 4Q20

Tangible book value per share of $24.56 at December 31, 2021 increased by $1.78 or 7.8% from $22.78 at December 31, 2020.
Year-over-year net loan growth was $52.3 million or 9.5%, which includes a decrease of $36.8 million in PPP loans. Excluding the PPP loans, gross core loan growth was $86.6 million or 17% year-over-year.
Deposits grew $137 million or 22.9% on a year-over-year basis compared to December 31, 2020. Excluding brokered deposits of $10.2 million as of December 31, 2020, core deposits increased $147.2 million or 25% year-over-year. The majority of the core growth was in demand deposits $74.9 million and low interest cost money market $41.2 million, savings deposits $12.8 million and NOW accounts $5.4 million. As of December 31, 2021 the Bank had decreased the higher cost brokered deposits balances to only $246 thousand from the prior year at $10.2 million.
As of December 31, 2021, the Bank had reduced overall cost of funds to 0.21%, down from 0.41% at December 31, 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 December 31, 2021 totaled $3.079 million (excludes $93 thousand for off-balance sheet and check card loss provision), a decrease of $174 thousand compared to $3.253 million through December 31, 2020. Loan recoveries through December 31, 2021 of $540 thousand related to the isolated charge-off positively impacted the loan loss provision expense.
Non-interest income year-to-date as of December 31, 2021 decreased by $1.5 million or 18% compared to December 31, 2020. The mortgage activity and secondary sales income decrease of $824 thousand, along with the security sale gains decrease of $553 thousand, account for the majority of the decrease year-over-year.
Non-interest expense as of December 31, 2021 increased by $723 thousand compared to December 31, 2020. The increase is directly related to the growth of the balance sheet (19% year-over-year) as staffing has increased to support the growth, and increased FDIC insurance premiums as deposits increased (22.9% year-over-year).

Dividend

A dividend of $0.04 per share was declared by the Board of Directors on January 21, 2022 for shareholders of record as of February 4, 2022 and payable on February 11, 2022.

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)

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

Assets
Cash and due from banks		$	41,308	$	55,559	$	49,830	$	43,425	$	28,785
	Total cash and cash equivalents		41,308		55,559		49,830		43,425		28,785

Securities available-for-sale, at fair value			144,019		130,431		86,343		61,086		72,439
Equity securities, at cost			338		338		338		462		462

Loans			610,326		570,727		569,877		585,811		558,967
Less allowance for loan loss			6,500		6,071		5,812		8,948		7,480
	Loans, net		603,826		564,655		564,065		576,864		551,486

Loans held for sale			6,428		7,963		8,008		10,717		12,626
Premises and equipment, net			6,771		6,858		7,025		6,529		6,400
Right-of-use assets			2,301		2,417		2,533		2,557		2,667
Accrued interest receivable			1,971		1,738		1,746		2,035		2,199
Deferred tax assets			2,141		2,007		1,873		3,025		2,081
Bank-owned life insurance			6,475		6,443		6,393		6,340		5,280
Goodwill			1,657		1,657		1,657		1,657		1,657
Intangible assets			1		3		5		7		9
Other Assets			1,556		1,715		1,590		1,750		2,090
	Total Assets	$	818,792	$	781,783	$	731,404	$	716,452	$	688,181

Liabilities and Stockholders' Equity

Liabilities
Deposits:
Non-interest-bearing demand		$	272,282	$	254,058	$	233,757	$	228,946	$	197,297
Interest-bearing			464,285		444,488		417,157		405,499		402,262
	Total Deposits		736,567		698,546		650,914		634,445		599,560

Subordinated debt, net			14,753		14,731		14,708		14,686		14,664
Other borrowings			1,887		2,629		4,015		3,719		8,558
Lease liabilities			2,368		2,480		2,591		2,610		2,715
Accrued interest payable			190		409		206		426		215
Other liabilities			6,072		7,099		4,416		7,349		9,509
	Total Liabilities		761,837		725,895		676,850		663,236		635,221

Stockholders' Equity
Common stock			23		23		23		23		23
Surplus			28,523		28,523		28,523		28,523		28,523
Additional PIC restricted stock			14		-		-		-		-
Retained earnings			29,288		28,121		25,954		25,152		23,633
Accumulated other comprehensive income (loss)			(893)		(779)		54		(482)		782
	Total Stockholders' Equity		56,955		55,888		54,554		53,216		52,960

	Total Liabilities and Stockholders' Equity	$	818,792	$	781,783	$	731,404	$	716,452	$	688,181

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

			Three Months Ended						Twelve Months Ended
			December 31,		September 30,		December 31,		December 31,		December 31,
			2021		2021		2020		2021		2020

Interest Income
	Loans, including fees	$	6,144,691	$	6,407,015	$	6,311,740	$	25,386,430		22,934,974
	Securities		565,044		436,526		307,082		1,653,188		1,073,590
	Fed funds sold and other		16,586		26,859		13,044		57,271		152,726
	Total interest income		6,726,322		6,870,400		6,631,865		27,096,889		24,161,290

Interest Expense
	Deposits		383,525		427,313		619,250		1,754,507		3,353,129
	Borrowed funds		-		-		-		947		48,869
	Subordinated debt		238,049		238,049		238,053		952,197		947,409
	Other Interest Expense		47,266		45,323		63,216		215,089		170,293
	Total interest expense		668,841		710,686		920,519		2,922,741		4,519,700

Net interest income			6,057,481		6,159,714		5,711,346		24,174,148		19,641,590
Provision for loan losses			426,483		(245,988)		1,456,879		3,079,173		3,252,897
Net interest income after provision for loan losses			5,630,998		6,405,702		4,254,467		21,094,975		16,388,693

Non-interest income
	Service charges on deposits		179,650		180,225		199,634		734,710		648,125
	Earnings bank owned life insurance		24,210		40,956		54,648		162,162		144,962
	Gain sale of fixed assets		18,000		-		-		19,500		500
	Gain sale of securities		-		-		575,869		196,091		749,590
	Mortgage loan income activity		822,280		1,252,561		2,210,046		4,849,705		5,673,836
	Other non-interest income		232,343		211,864		170,711		818,114		1,047,791
	Total non-interest income		1,276,483		1,685,606		3,210,907		6,780,282		8,264,803

Non-interest expense
	Salaries and employee benefits		3,016,112		2,967,511		2,928,023		11,446,557		11,147,427
	Occupancy and equipment		719,872		708,358		681,446		2,811,633		2,738,468
	Legal and professional fees		238,066		155,208		217,174		712,544		746,435
	Advertising		162,770		130,244		453,077		580,364		271,442
	Data processing		625,147		544,371		570,630		2,262,821		1,984,715
	FDIC premiums		115,376		93,840		112,999		432,975		272,154
	Goodwill amortization		-		-		-		-		-
	Loss sale of securities		-		-		-		17,826		-
	Loss sale fixed assets		816		-		-		816		-
	Loss interest rate lock commitments		-		-		-		-		-
	Other intangible amortization		2,083		2,083		2,083		8,333		8,333
	Other		386,448		412,142		227,229		1,395,289		1,777,342
	Total non-interest expense		5,266,691		5,013,757		5,192,661		19,669,159		18,946,318
Income before taxes			1,640,790		3,077,551		2,272,713		8,206,098		5,707,179
Income tax expense			383,730		820,160		705,528		2,190,813		1,579,761
Net Income		$	$1,257,060	$	$2,257,391	$	$1,567,185	$	$6,015,285	$	$4,127,418

Basic earnings per share		$	0.56	$	1.00	$	0.70	$	2.67	$	1.83

Community Heritage Financial, Inc. and Subsidiaries
Selected Financial Data

Income Statement Review

		For the Three Months Ended						For the Twelve Months Ended
		December 31,		September 30,		December 31,		December 31,		December 31,
		2021		2021		2020		2021		2020
		(Unaudited)		(Unaudited)		Audited		(Unaudited)		Audited

Interest Income	$	6,726,322	$	6,870,400	$	6,631,865	$	20,370,568	$	24,161,290
Interest Expense		668,841		710,686		920,519		2,253,900		4,519,700
Net interest income		6,057,481		6,159,714		5,711,346		18,116,668		19,641,590
Provision expense		426,483		(245,988)		1,456,879		2,652,690		3,252,897
Net interest income after provision	$	5,630,998	$	6,405,702	$	4,254,467	$	15,463,978	$	16,388,693

Non-interest income	$	1,276,483	$	1,685,606	$	3,210,907	$	5,503,020	$	8,264,803
Non-interest expense		5,266,691		5,013,757		5,192,661		14,401,691		18,946,317
Merger expenses		-		-		-		-		-

Yield on interest-earning assets		3.44%		3.71%		4.04%		2.83%		3.97%
Cost of interest-bearing liabilities		0.56%		0.63%		0.86%		0.51%		1.11%
Efficiency ratio		71.81%		63.91%		58.20%		60.97%		67.89%

Balance Sheet Review

		December 31,		September 30,				December 31,
		2021		2021				2020
		(Unaudited)		(Unaudited)				Audited
(dollars in thousands)
Total assets	$	818,792	$	781,783			$	688,181
Loans, net of reserve		603,826		564,655				551,486
Goodwill & intangibles		1,658		1,660				1,666
Deposits		736,567		698,546				599,560
Shareholder's equity		56,955		55,888				52,960


Asset Quality Review
Non-accrual loans	$	2,091	$	1,471			$	1,007
Trouble debt restructured loans still accruing		956		963				933
Loans 90 days past due still accruing		-		-
Foreclosured properties		-		-				-
Total non-performing assets	$	3,048	$	2,434			$	1,940

Non-performing assets to total assets		0.37%		0.31%				0.28%
Non-performing assets to total loans		0.50%		0.42%				0.35%

Summary of Operating Results

		For the Three Months Ended				For the Twelve Months Ended
		December 31,		December 31,		December 31,		December 31,
		2021		2020		2021		2020
		(Unaudited)		Audited		(Unaudited)		Audited

Pre-allowance for Loan Loss provision, pre-tax net income	$	2,067,273	$	3,729,592	$	11,285,272	$	8,960,077
Allowance for loan loss provision, pre-tax		426,483		1,456,879		3,079,173		3,252,897
Tax expense		383,730		705,528		2,190,813		1,579,761
Net Income	$	1,257,060	$	1,567,185	$	6,015,285	$	4,127,418

(dollars in thousands)
Charge-offs	$	16	$	13	$	4,671	$	63
(Recoveries)		(8)		(6)		(586)		(35)
Net charge-offs	$	8	$	7	$	4,085	$	28

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	$	0.56	$	0.70	$	2.67	$	1.83
Dividend declared	$	0.04	$	0.04	$	0.16	$	0.16

Book value per share	$	24.30	$	23.52	$	25.30	$	23.52
Tangible book value per share	$	24.56	$	22.78	$	24.56	$	22.78

Selected Financial Ratios (unaudited)

Return on average assets		0.63%		0.92%		0.80%		0.64%
Return on average equity		8.66%		11.65%		10.66%		8.06%
Allowance for loan losses to total loans		1.06%		1.34%		1.06%		1.34%
Allowance for loan loss to total loans (excluding PPP loans)		1.09%		1.47%		1.09%		1.47%
Non-performing assets to total loans		0.50%		0.35%		0.50%		0.35%
Non-performing assets to total loans (excluding PPP)		0.51%		0.38%		0.51%		0.38%
Net Charge-offs to total loans		0.00%		0.00%		0.67%		0.01%
Common equity tier 1 (CET1) capital		10.26%		N/A		10.26%		N/A
Tier1 capital		10.26%		N/A		10.26%		N/A
Total risk based capital		11.39%		N/A		11.39%		N/A
Tier-1 leverage ratio		8.57%		N/A		8.57%		N/A
Community bank leverage ratio (bank only)**		N/A		9.11%		N/A		9.11%
Average equity to average assets		7.25%		7.87%		7.54%		8.00%
Tangible Common Equity/Tangible Common Assets		6.77%		6.95%		6.77%		6.95%
Net interest margin (bank only, normalized)*		3.28%		3.61%		3.43%		3.69%
Loans to deposits - (EOP)		82.86%		93.21%		82.86%		93.21%
*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.