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Centric Financial Corporation Announces Second Quarter 2021 Earnings

Harrisburg, Pennsylvania (August 5, 2021) – Centric Financial Corporation (“Centric” or “the Company”) (OTC: CFCX), the parent company of Centric Bank (“the Bank”), reported net income of $3.6 million, or $0.42 per common share diluted, for the second quarter 2021. For the first six months of 2021, net income was $7.2 million or $0.85 per common share diluted, outpacing the same period last year by $3.4 million.

Highlights of Performance:

  • Net income increased $1.3 million, or 59%, over second quarter 2020, an increase of $0.17 and $0.16 per common share-basic and diluted, respectively.  
  • Net interest margin increased 34 basis points over second quarter 2020, ending at 3.94%.
  • Cost of deposits decreased to 0.40%, an improvement of 4 and 26 basis points, respectively, from the previous quarter and second quarter 2020.
  • Return on Average Assets of 1.29%, increased 37% over second quarter 2020 and declined 3% from the first quarter.  For the first six months of 2021 ROAA amounted to 1.31%, up from 0.86% for the same period last year.  
  • Second quarter Return on Average Equity of 15.99%, decreased 5% from last quarter, and increased 43% over second quarter 2020.
  • Tangible book value per share of $10.79 increased $0.41 per share, or 4%, from the previous quarter and increased $1.52 per share, or 16% over the second quarter 2020.
  • Organic loan growth (gross loans excluding the impact of PPP loans) increased $35 million over the first quarter and $104 million over the second quarter 2020.

Patricia A. Husic, President & CEO of Centric Financial Corporation and Centric Bank stated, “We are very pleased with this quarter’s results, which are highlighted by our increased net income, expansion of our net interest margin, and strong quarter of commercial lending activity. Year-to-date ROA is 1.31%, ROE is 16.39%, and period end tangible book value rose to $10.79, increasing by 16% over the prior year. We remain intentional in driving our loan growth, repositioning the deposit composition on our balance sheet to lower our cost of deposits, and disciplined in pricing our products, which is reflective in our solid year-to-date net interest margin of 3.96%.

Our commercial lending grew by $35 million this quarter even with the impact of payoffs from sales of commercial real estate and businesses during the quarter. Organic loans represent 12% in annualized growth through June 30, 2021.  Our pipeline is strong and continues to expand with opportunities in our markets. The Devon location produced 27% in loan growth over June 30, 2020, totaling $230 million at period end. The combined offices in the greater Philadelphia region represent 46% of total loans, a strong contributor to our loan portfolio. SBA loan activity is rising, and our pending pipeline is experiencing modest growth, which in turn, would drive an increase in non-interest income in future periods.  We continue to evaluate opportunities to reduce our non-interest expenses and to further enhance our efficiency.
Centric remains disciplined on smart, profitable growth and focused on executing our key strategic initiatives.”
Results of Operations – Second Quarter
Net income for the quarter ended June 30, 2020 was $3.6 million, or $0.42 per diluted share, consistent with the earnings reported for the first quarter of 2020. Compared to second quarter 2020, net income increased $1.3 million, or 59%, and $0.16 per diluted share.

Net interest income for the quarter was $10.4 million, an increase of $102 thousand over first quarter.  The increase from previous quarter was largely due to organic loan growth, a reduction in the cost of deposits of 4 basis points, and a decline of $10 million in total borrowings.  PPP lending and forgiveness contributed $1.4 million in deferred fees, increasing the net interest margin to 3.94% for the quarter. Net interest income increased $2.1 million, or 26%, over second quarter 2020.  Organic loan growth expanded by $104 million, an increase of $670 thousand in PPP deferred fees, and reduced funding expense of $499 thousand, contributed to an increase of 34 basis points in net interest margin over the same period 2020.

Noninterest income totaled $922 thousand for the second quarter, down from $1.2 million in the first quarter, and an increase of $199 thousand from second quarter 2020.  During the second quarter 2021, gain on sale of SBA loans amounted to $147 thousand, increasing from both comparative quarters, however there was an $80 thousand loss from the market adjustment on equity securities, and a decrease in swap fee income in the current quarter.  

Changes from the second quarter 2020 noninterest income included increases of $183 thousand in gains on the sale of mortgage loans, account analysis service fees and debit card income totaling $69 thousand, off-set by a decline in other loan and services fees of $82 thousand.  

Noninterest expense of $6.3 million for the second quarter remained consistent with the first quarter of 2021.  Salaries and benefits remained consistent, while occupancy and equipment expense decreased related to lower building maintenance, and loan and collection expense decreased $78 thousand.

Compared to second quarter 2020, noninterest expenses increased $1.1 million, or 22%, affected by increased salary and benefits of $598 thousand.  Health insurance expense increased by $50 thousand, mortgage commissions increased $103 thousand, and performance-based incentive accruals increased by $203 thousand. The quarter ending June 30, 2020 did not contain any incentive accruals as our teams were focused on the Paycheck Protection Program loans to small business during the pandemic and while businesses were shutdown.  From prior quarter total employee compliment has been reduced by 2.1%.  Occupancy and equipment added $75 thousand related largely to increases in equipment depreciation and property insurance expenses. Advertising expense increased $75 thousand with increased sponsorships and a normalizing of advertising to close to pre-pandemic levels, FDIC assessments increased $156 thousand due to enhanced PPP relationships, and software and licensing costs rose $70 thousand largely related to PPP lending.  

Results of Operations – Year to Date

Net income for the first six months of 2021 increased nearly two times the prior year, ending at $7.2 million, or $0.86 and $0.85 per basic and diluted share, respectively, an increase of $3.4 million, or 90%, and $0.43 and $0.42 per basic and diluted share, respectively, over the prior year.

Net interest income increased $5.3 million, or 34%, over the six months ended June 30, 2020.   Interest and fees on loans increased $3.6 million, primarily due to the $2.6 million increase in PPP deferred fee income and increased core lending of $104 million.  Although total deposits increased $94 million, funding expense decreased $1.6 million, or 36%, due to lower rates on deposits by 51 basis points.  This savings was attributed to rate reductions as time deposits matured, increased noninterest bearing deposit balances by $27 million, and reduced balances and rates on wholesale funding.  Net interest margin for the period ending June 30, 2021, was 3.96%, a 26 basis-point improvement from the 3.70% obtained during the first six months of 2020.

Noninterest income totaled $1.9 million for the first six months of 2021, an increase of $439 thousand, or 29%, from the same period 2020.  Mortgage income rose 138%, or $427 thousand, from the production and sale of mortgage loans during the quarter.  Swap referral fees have decreased $66 thousand from last year as rates shifted away from optimum opportunities.  Service charges on deposits rebounded with the addition of cash management account analysis products adding $59 thousand.  Gain on the sale of SBA loans grew by $68 thousand and debit card income increased by $51 thousand.

Noninterest expense totaled $12.6 million, an increase of 22%, or $2.3 million over 2020.  The Bank’s largest noninterest expense continues to be the investment in our employees as salaries and benefits rose by 19%, or $1.2 million. The increase is due to annual merit increases of $359 thousand, $101 thousand growth in mortgage commission expense, $139 thousand in other lending-based incentives, an increase of $266 thousand in performance-based incentive accruals which the prior year did not have due to the effects of the pandemic on the economy and increases in health care expense of $117 thousand.  Year over year total employee compliment has increased 3.6%.   Advertising and marketing expanded $171 thousand, or 118%, normalizing after 2020’s COVID related decline.  Occupancy and equipment expense increased by $148 thousand. Loan and collection expense rose by $130 thousand, and regulatory assessments increased $273 thousand connected to the increase in PPP relationships.  License and software fees increased $128 thousand with PPP related expenses, implementation of Banno digital banking and the expansion of nCino loan licenses.

Asset Quality

Provision expense for the first and second quarter remained flat at $450 thousand per quarter but declined $525 over second quarter 2020.  For the six months ending June 30, 2021 total provision expense amounted to $900 thousand, down from the $1.8 million taken in the first six months of 2020.  The decline is related to the uncertainty of the economy in 2020 at the height of the pandemic. The coverage ratio for the allowance for loan and lease loss is 1.15% of the total loan portfolio and 1.36% excluding PPP loans. The allowance for loan and lease losses was $11.1 million and $9.8 million at June 30, 2021 and 2020, respectively.  Management believes the allowance for loan and lease losses at June 30, 2021 adequately reflects the inherent risk in the loan portfolio.

At June 30, 2021, nonperforming assets totaled $15.1 million, an increase of $3 million from the first quarter, consisting of a $2.7 million increase in loans 90+ days past due.  Of the increase in loans 90+ days past due, $2 million has since been brought current by the borrower.  From June 30, 2020, nonaccrual loans increased $5.9 million.  Total nonperforming assets were 1.36% of total assets at quarter end, an increase of 0.28% from previous quarter and 0.34% from June 30, 2020.

Table of Q2 2021 Asset Quality (in thousands)

SBA loans that were considered nonperforming at June 30, 2021 totaled $3.6 million, an increase of $370 thousand from a year ago.  Nonperforming conventional loans increased $4.3 million from a year ago.         

Balance Sheet

At June 30, 2021, Centric’s total assets were $1.1 billion compared to $1.0 billion at June 30, 2020, an increase of $70 million, or 7%. Cash and cash equivalents grew $23 million coupled with the reduction in borrowings of $33 million.  Loans outstanding increased $40 million despite the reduction of $159 million in PPP loan forgiveness.  Centric participated in the second round of PPP lending to support our communities and customers, generating an additional $91 million in loans during 2021 to 1,100 small businesses, helping to save over 10,000 jobs.
Total loans ended the period at $960 million, a decline of $38 million from prior quarter.  Excluding the $73 million in net PPP loan reductions from forgiveness, organic loan growth was $35 million.  Commercial loans increased $8 million and CRE loans increased $26 million.  Compared to the same period last year, core loans increased $104 million, or 15%, with $90 million attributed to CRE loan growth.  Net PPP loans outstanding at period end amounted to $143 million.  Organic loans represent 12% in annualized growth through June 30, 2021.    

Investments in securities remained consistent with the prior quarter and increased $10 million over the same quarter prior year, with increases in tax free municipals of $14 million, and taxable municipals of $4 million, offset by sales and paydowns of mortgage backed securities of $8 million.  The changes were brought about by execution of a strategy to increase tax-free holdings.  

Total deposits ended the period at $945 million, similar to the prior quarter with a change in the mix.  Interest-bearing checking and money market deposits increased $17 and $16 million, respectively, as noninterest bearing deposits and certificates of deposit declined $12 and $23 million from March 31, 2021.  The shift out of certificates of deposit was due to the reduction of wholesale funding of $35 million from the prior quarter.

From June 30, 2020, core deposits in money market accounts grew 51%, or $76 million, alongside the increases in noninterest bearing deposits of $26 million, or 12%.   Interest-bearing deposits grew 7% while certificates of deposit balances decreased $26 million, with a reduction in wholesale funding of $35 million.

Short-term borrowings totaled $10 million at June 30, 2021, consistent with the prior quarter and a decrease of $20 million from the same period prior year.  Long-term borrowings totaled $61 million at quarter end, a decrease of $10 million from prior quarter and $13 million from second quarter 2020 as maturing borrowings were not replaced due to increased deposits.  The balance of PPPLF borrowings has declined to $335 thousand at June 30, 2021 as the PPP loans securing the borrowing were granted forgiveness through the Small Business Administration.  

Shareholders’ equity increased $4 million over first quarter 2021 and ended the period at $92 million. Year over year equity increased $10 million, or 13%.  At June 30, 2021, Centric held 315,764 shares of treasury stock repurchased under the Company’s stock repurchase plan during 2020.  No new treasury shares have been purchased in 2021.  Tangible book value increased $0.41 per share over first quarter and ended the period at $10.79.  Tangible book value increased $1.52 per share, or 16%, from June 30, 2020, as a result of increased earnings and stock repurchases over the period.  Centric Bank remains above bank regulatory “Well Capitalized” standards.

Table of Q2 2021 Consolidated Balance Sheet (unaudited)

Table of Q2 2021 Consolidated Statement of Income (unaudited)

Table of Q2 2021 per share data and performance ratios (unaudited)

Table of Q2 2021 consolidated average balance sheets and average yield / cost (unaudited) 3 months end

Table of Q2 2021 consolidated average balance sheets and average yield / cost (unaudited) 6 month end

About the Company

Founded in 2007, Centric Financial Corporation, and its subsidiary, Centric Bank, is headquartered in south central Pennsylvania with assets of $1.1 billion and remains a leader in organic loan growth.  A locally owned, locally loaned community bank, Centric Bank provides competitive and pro-growth financial services to businesses, professionals, individuals, families, and the health care industry.  An American Banker 2020, 2019 and 2018 Best Banks to Work For, three-time Best Places to Work, Top 50 Fastest-Growing Companies for eight years, and three times ranked a Top 200 Publicly Traded Community Bank by American Banker for financial performance.    

Centric Bank has financial centers located in Harrisburg, Hershey, Mechanicsburg, Camp Hill, Doylestown, Devon, and Lancaster, loan production offices in Lancaster and Devon, and an Operations and Executive Office campus in Hampden Township, Cumberland County. To learn more about Centric Bank, call 717.657.7727, or visit  Connect with them on Twitter, Facebook, LinkedIn, and Instagram.

Centric Financial Corporation is traded over the counter (OTC-Pink) with the ticker symbol CFCX.

Cautionary Note Regarding Forward-looking Statements:
This news release may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that include projections, predictions, expectations, or beliefs about events or results or otherwise are not statements of historical facts.  Actual results and trends could differ materially from those set forth in such statements and there can be no assurances that we will be able to continue to successfully execute on our strategic plan.  Factors that could cause actual results to differ from those expressed or implied by the forward looking statements include, but are not limited to, the following:  changes in current or future market conditions; the residual effects of the Covid-19 pandemic on business and impact to the economy, the effects of competition, development of competing financial products and services; changes in laws and regulations, the interest rate environment; changes in credit quality; inability to raise capital, if necessary, under favorable conditions; volatilities in the securities markets;  other deteriorating economic conditions; and other risks and uncertainties.

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