Centric Financial Corporation Announces Earnings for 3rd Quarter 2020
Harrisburg, Pennsylvania (November 10, 2020) – Centric Financial Corporation (“Centric” or “the Company”) (OTC: CFCX), the parent company of Centric Bank (“the Bank”), today reported net income of $2,461,000, or $0.28 per common share-basic and diluted, for the third quarter 2020, compared to $2,259,000, an increase of 9% or $0.19 per share in third quarter 2019. For the nine-month period ending September 30, 2020, net income was $6,261,000, or $0.72, per common share-basic and diluted.
Highlights of Performance:
- Total assets of $1.07 billion at September 30, 2020, an increase of $34 million, or 3%, over the quarter ending June 30, 2020.
- COVID related deferred loans under the CARES ACT decreased to 3.2% of loans outstanding.
- Loans outstanding increased $26 million, or 3%, from June 30, 2020; SBA Paycheck Protection Program (“PPP”) loans increased $3 million during the third quarter with core loan growth of $23 million.
- Net interest margin of 3.56%, a decline of 4 basis points from June 30, 2020 and September 30, 2019.
- Cost of deposits decreased to 0.47%, a reduction of 0.19%, and 1.10%, for the quarters ending September 30, 2020, and September 30, 2019, respectively.
- Net income of $2.46 million for the quarter ending September 30, 2020, an increase of $202,000, or 9%; and $807,000, or 49%, increase over the same period, prior year.
- Quarter-to-date Return on Average Assets of 0.94%, an increase of 15% over third quarter 2019 and consistent with second quarter 2020.
- Return on Average Equity of 11.89%, an increase of 34% over third quarter 2019 and a 6% increase over June 30, 2020.
- Tangible book value per share of $9.64 at September 30, 2020, an increase of $0.37 per share, or 4%, over period ending June 30, 2020, and an increase of 13%, or $1.08 per share at September 30, 2019.
Patricia A. Husic, President & CEO of Centric Financial Corporation and Centric Bank stated, “Centric delivered another solid operating performance and results this quarter, with earnings of $2.46 million, an increase of 9% over the prior period. Our organic growth rate, excluding PPP loans, for the nine months ending September 30 was 9%, reflective of strong growth for our organization. Cost of deposits for the third quarter was 0.47%, a reduction of 1.10% from the prior year, same period. We have been disciplined in our efforts to reduce our costs of deposits during the last 12 months, especially with the pressure on net interest margin and declining interest rates over the past year. We continue to execute our strategic plan and remain laser focused on our strategic priorities.”
Results of Operations
Net income for the three months ended September 30, 2020 was $2,461,000, an increase of $807,000, or 49%, over the third quarter 2019 and an increase of $202,000, or 9%, over the second quarter of 2020. For the first nine months of 2020, net income totaled $6,261,000, an increase of $906,000, or 17%, from the same period last year.
For the three months ending September 30, 2020, net interest income was $8,966,000, an increase of $1,945,000, or 28%, over September 30, 2019, and an increase of $668,000 over the quarter ending June 30, 2020. For the quarter ending September 30, 2020, the yield on average earning assets was 4.20%, a decline of 102 basis points as compared to the prior period, same quarter at 5.22%. The significant reductions in market interest rates beginning with a minor rate cut of 0.25% in October 2019 and concluding, to date, in March 2020 with the deepest rate reductions of 1.50% in response to the COVID-19 pandemic has caused Centric to realize reduced asset yields, liability costs and margin. Yields on loans and interest-bearing assets include recognition of PPP servicing fees of $809,000 in the third quarter 2020. Cost of deposits were .47% for the quarter ending September 30, 2020, a decline of 1.10% from the quarter ending September 30, 2019, and .19% from the prior quarter ending June 30, 2020. Further reductions of interest expense in certificates of deposits are anticipated to occur as those certificates reach their maturities and reprice to the current interest rates.
Net interest income for the nine months ending September 30, 2020 was $24,435,000, a 17% increase, or an increase of $3,463,000 from the same period in 2019. The net interest margin was 3.65% for the nine-month period ending September 30, 2020, versus 3.82% for the nine month period ending September 30, 2019. For the nine-month period interest income on Federal funds sold declined $655,000, primarily due to reductions in rate. Year-to-date average balances on loans increased $178 million, and the corresponding yield declined 94 basis points to 4.75%, as compared to 5.69% in the prior year, producing an increase of $1,766,000 in loan interest income. The decline in loan yield was the result of reduced rates year over year and the significant influx of Paycheck Protection Program loans yielding 1.00%. Yields on loans and interest-bearing assets include recognition of PPP servicing fees of $1,582,000 year-to-date. The cost of deposits year-over-year declined $2,869,000, or 75 basis points, due to lower rates and the increase of noninterest bearing deposit balances of $102 million.
Non-interest income totaled $907,000 for the third quarter 2020 and was comparable to the same period prior year, at $922,000. For the nine months ending September 30, 2020, non-interest income decreased $561,000 from the same period prior year, due to decreased gains on SBA loans sold of $556,000, other fees on loans of $97,000, service charges on deposits of $58,000 and swap referral fees of $94,000. Gains on the sale of mortgage loans increased $241,000 year over year due to increased volume in the mortgage area in both purchase and refinances with loan sales on the secondary market.
Non-interest expense for the 3-month period ending September 30, 2020 was $5,790,000, an increase of $466,000 from the 3-month period ending September 30, 2019. Salary and benefit costs rose $444,000, or 15%, from the quarter ending September 30, 2019, as a result of increased compensation expense for the significant time and effort devoted to the Paycheck Protection Program loan initiative by many of our team members during 2020, increased mortgage commissions and the addition of staff for our Devon and Lancaster branches and loan production teams. FDIC assessments increased by $111,000 for the quarter ending September 30, 2020, as compared to the quarter ending September 30, 2019, due to FDIC small bank assessment credits of $84,000 which was applied to the FDIC assessment expense. These credits were not received in 2020.
For the nine months ended September 30, 2020, noninterest expense totaled $16,168,000, an increase of 4%, or $557,000. During this period, salaries and benefits increased 10%, or $878,000, due to new staffing at the Devon and Lancaster locations, increased compensation expense for the significant effort devoted to the PPP loan initiative, and an increase to health insurance premiums. Advertising and marketing decreased by $289,000, or 51%, as a result of reduced advertising and event sponsorships due to the pandemic. The building and occupancy expense increased by $107,000 for the nine month period ending September 30, 2020 as compared to the same period ending September 30, 2019, with the addition of leased space in Chester County for the loan production and cash management offices, new financial center in Devon and expanded space in Doylestown for the concierge branch. Contributions to food banks in the communities we serve and other non-profits that supported those impacted by layoffs and other conditions related to the pandemic, and the medical front line workers totaled over $75,000 for the year.
At September 30, 2020, Centric’s total assets were $1,074,756,000 compared to $791,584,000 million at September 30, 2019, an increase of $283 million, or 36%. The growth, year over year, was due to the significant volume of SBA guaranteed PPP loans totaling $210 million, net of deferred fees, as of September 30, 2020. The PPP loan proceeds assisted in boosting noninterest bearing deposits to 23% of total deposits at the end of the third quarter, versus 16% for the same period prior year.
Total loans at September 30, 2020 were $946 million, an increase of $244 million, or 35%, from December 31, 2019. During the third quarter of 2020, total loans increased by $26 million, or 3%, from the prior quarter. The increase in loans over September 30, 2019 is attributed to the growth in commercial and industrial loans of $216 million, or 106%. Net PPP loans were $210 million of the year over year growth, producing core loan growth of $63 million, or 9%, year over year. Centric chose to fund the PPP growth with short-term wholesale deposits, with an average cost of 0.11%, significantly less than the Federal Reserve’s Paycheck Protection Program Liquidity Facility (“PPPLF”).
Total deposits ended September 30, 2020 at $888 million, an increase of $238 million, or 37%, over September 30, 2019, and an increase of $36 million from second quarter 2020. Non-interest bearing deposits increased $102 million, or 98% year over year, primarily due to PPP loan proceeds. Interest-bearing demand increased $204 million, or 163%, over September 30, 2019 and $81 million over June 30, 2020. The addition of $70 million in wholesale deposits from June replaced the high-priced certificates of deposit and took advantage of lower cost of funding to further improve our cost of deposits.
Short-term borrowings totaled $25 million at September 30, 2020, a decrease of $5 million from June 30, 2020, and increased by $18 million as compared to September 30, 2019. Long-term borrowings totaled $70 million at September 30, 2020, an increase of $5 million and $22 million, from June 30, 2020 and September 30, 2019, respectively.
Shareholders’ equity ended the period at $82 million, an increase of $6 million, or 8%, from September 30, 2019. Current quarter end over last quarter end remained consistent due to the repurchase of $2.4 million of common stock through an approved stock repurchase plan during the quarter. Tangible book value per share increased $0.37 per share over September 30, 2019 as a result of the stock repurchase and $0.71 per share as a result of earnings over the same period last year. Regulatory capital ratios for the bank exceeded “well capitalized” at September 30, 2020.
Under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act and joint regulatory agency statements in response to COVID-19 were provisions to assist borrowers with short-term modifications which are not treated as troubled debt restructurings. Circumstances for modifications were handled on a case by case basis and how they were affected by the pandemic. Types of modifications were from full principle and interest deferral, to payments of interest-only. Most modifications were given for a three-month period with some out to six months in length based on evaluation of each borrower’s situation. Centric monitors relationships with deferrals to assess the financial performance of its borrowers and may make future modifications if individual circumstances warrant the action. All loans which received modifications were performing loans prior to the pandemic, and will continue to accrue interest during the deferral periods. As of September 30, 2020, CARES Act qualifying deferrals totaled $30.4 million, or 3.2% of total loans, a reduction of $190 million in loans modified for payment deferrals compared from the $220 million or 23.9% of loans at June 30, 2020.
The provision for credit losses in third quarter of 2020 was $975,000, an increase of $450,000, or 86%, over the third quarter 2019. For the nine months ending September 30, 2020, the provision expense amounted to $2,775,000, an increase of $1,190,000, or 75%, over the respective period in 2019. The increase is related to qualitative factors for the economic impact related to COVID-19, unemployment rates and core growth of the loan portfolio. The coverage ratio for the allowance for loan and lease loss is 1.14% of the total loan portfolio and 1.46% excluding PPP loans. The allowance for loan and lease losses was $10.8 million and $7.9 million at September 30, 2020 and 2019, respectively. Management believes the allowance for loan and lease losses at September 30, 2020 adequately reflects the inherent risk in the loan portfolio.
At September 30, 2020, nonperforming assets totaled $12.0 million, consistent with year-end December 31, 2019 with an increase of $ 3.4 million in nonaccrual loans, a decrease in restructured loans still accruing of $2.3 million and a decrease of $1.1 million in 90+ days past due. Total nonperforming assets as a percentage of total loans was 1.12%, an increase from the prior quarter end ratio of 1.01%. This increase was a result of $2.2 million in loans from troubled debt restructurings to loans 90+ days past due & still accruing from the second quarter, consisting of two loan relationships, and an additional $1.3 million, were downgraded to nonaccruals. From June 30, 2020 to September 30, 2020, nonperforming SBA loans increased by $409,000, and the conventional portfolio increased by $1.1 million. At September 30, 2020, 30-89 day delinquencies were $14.1 million with $7.3 million related to one relationship. Through prudent monitoring of lending relationships and collection efforts during October, the 30-89 day delinquency decreased $13.3 million to $752,000 as of October 31, 2020.
About the Company
Founded in 2007, Centric Financial Corporation, and its subsidiary, Centric Bank, is headquartered in south central Pennsylvania with assets of $1.07 billion and remains a top 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 seven years, and twice ranked a Top 200 Publically 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 CentricBank.com. 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 effects of the Covid-19 pandemic limitations on business and how it will impact 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.
# # #