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Centric Financial Corporation Announces 1st Quarter 2020 Results; Processing over 1,350 SBA Paycheck Protection Program Loans in Round One & Two

Harrisburg, Pennsylvania (May 6, 2020)  –  Centric Financial Corporation (“Centric” or “the Company”) (OTC: CFCX), the parent company of Centric Bank (“the Bank”), today reported net income of $1,541,000, or $0.18 per common share-basic for the first quarter 2020.  Compared to first quarter 2019, net income decreased $216,000.  Return on Average Assets and Return on Average Equity ended the first quarter at 0.77% and 7.82%, respectively, with net interest margin increasing seven basis points from the prior quarter to 3.82%.

Highlights

  • Total assets ended at $843 million, an increase of $11 million, or 1%, over December 31, 2019.
  • Loans outstanding decreased $10 million, or 1%, from year-end due to sale of properties and resulting payoffs.
  • 3.82% net interest margin for first quarter, an increase of seven basis points over fourth quarter 2019.
  • First quarter Return on Average Assets and Return on Average Equity at 0.77% and 7.82%, respectively.  The additional provision expense impacted ROAA by 0.12%.
  • Tangible book value per share was $8.99 at March 31, 2020, an increase of $0.20 per share, or 2% over December 31, 2019.
  • Processed over 1,350 SBA Paycheck Protection Program (“PPP”) loans totaling over $200 million for new and existing small business customers in our communities through April 30, 2020.
  • Proactively worked with borrowers on payment deferral arrangements specific to their business or personal circumstance.  Deferrals have been processed for over $130 million in customer balances through April 2020, and moderates the Bank’s economic risk factors.

COVID-19

The Bank adjusted qualitative factors related to the impact of COVID-19 in its Allowance for Loan and Lease Loss calculations.  As a result of management’s assessment, the Bank recorded an additional loan loss provision of $300,000 in the first quarter of 2020.  However, this is a period of great uncertainty and businesses still are not yet permitted to open in Central PA or Suburban Philadelphia. The impact of COVID-19 is likely to be felt over the next several quarters. As such, additional adjustments to the allowance for loan losses may be required in future quarters as the full impact of COVID-19 with respect to the Bank’s borrowers becomes known.  The increased provision expense and related tax adjustment, resulted in the reduction of basic earnings per share of $.02 and a reduction of return on average assets of 0.12%.

Because the impact of COVID-19 is not yet known, payment relief in the form of deferrals are being provided to borrowers experiencing financial stress due to the pandemic and waving late charges upon request to those affected.  We have waived overdraft fees and early withdraw penalty in related circumstances.  We are also permitting customers to exceed monthly transaction limits on savings and money market accounts to provide access to funds and created a fee free skip-a-pay program for consumer customers.

Ensuring the safety of our employees and customers, drive up facilities are operating on regular hours while lobbies are available by appointment on a temporary basis.  All facilities have been sanitized and outfitted with additional personal protective shields at customer stations.  Employees have also been provided masks and gloves.  Approximately 67% of our workforce is working remotely.

To support our customers and communities Centric has provided more than 600 meals to ER and hospital workers.  Those meals were all prepared by our customers.  To further support our communities Centric has donated $30,000 to the Central Pennsylvania Food Bank and is making a donation in our suburban Philadelphia markets as well.

Patricia A. Husic, President & CEO of Centric Financial Corporation and Centric Bank stated, “Since the beginning of March, our efforts have largely focused on mitigating the impact of COVID-19 on our employees, customers, and community. We have emphasized employee safety through our work from home initiatives, utilizing drive-thru’s solely for customer transactions and in branch appointments on request, assisting customers to enroll for online and mobile app technology and dispersion of key functions.

Ms. Husic added, “We are supporting borrowers impacted by COVID-19 with various payment relief programs, as well as waiving certain fees for our loan and deposit customers.  The health and safety of our employees, customers, businesses, and the community are priority one for us at Centric Bank.  The Bank immediately enacted our business continuity plan in response to the pandemic. Our goal is to keep our employees and customers safe while providing critical resources and assistance in our communities.”

Husic further added, “Subsequent to quarter end, we have actively participated in the SBA’s Paycheck Protection Program (PPP), assisting small businesses to retain an estimated 15,000 employees and successfully processing PPP loans for 811 small businesses totaling over $157 million. Those processing fees are estimated at $4.8 million in fee income recognized over the life of the loan. The Bank is actively processing applications for Round 2 of the Paycheck Protection Program. To date, our Team has processed over 550 applications for $51 million, estimating an additional $1.7 million of fee income related to Round 2. During this time, our Team has opened over 825 business checking accounts for those same small business applicants to onboard them as customers.”

Results of Operations

Centric’s net interest income was $7,171,000 for the three months ended March 31, 2020, an increase of $418,000, or 6%, over the first quarter 2019 and an increase of $24,000 over the fourth quarter 2019.  Yield on average earning assets was 5.19%, a decline of 4 basis points compared to the fourth quarter 2019 at 5.23%. The unprecedented decrease in prime and effective federal fund interest rates during March had an impact on yields and margin.  Cost of deposits from the fourth quarter 2019 to the first quarter 2020 declined 14 basis points to 1.26%, due to a change in the mix of deposit products.  First quarter 2020 over first quarter 2019 net interest margin has experienced a thirteen basis point decline to 3.82%. Due to the bank’s pricing strategies on deposits, the margin has increased over the past two quarters.  For the month of April the Bank’s cost of deposits reduced to 0.80%.

Non-interest income totaled $772,000 for the first quarter 2020, a decrease of $78,000 from the same quarter 2019, primarily due to a decline in loan fees of $135,000.  Compared to the prior quarter non-interest income decreased $360 thousand.  Swap referral fee income for the first quarter 2019 was $72,000, an increase of $12,000 over the same period 2019 and a decrease from the fourth quarter 2019 of $245,000.  

Non-interest expense for the first quarter 2020 was $5,182,000, down from the fourth quarter 2019 by $119,000, and up from the first quarter 2019 by $314,000.  Salary and benefit costs rose $318,000, or 11%, from the first quarter 2019 due to the increased branch and loan production staff for the Suburban Philadelphia offices and increased benefits expenses.  Advertising and marketing decreased $53,000 from prior quarter and decreased $113,000 from the first quarter 2019.  Amortization expense of mortgage servicing rights associated with the SBA portfolio decreased from fourth quarter 2019 by $177,000, contributing to the decline in other non-interest expense between the quarters.   For the quarter ended March 31, 2020 net income totaled $1,778,000, a decrease of $152,000, or 8%, from prior quarter and a gain of $21,000 from first quarter 2019.  

Balance Sheet

Total assets at March 31, 2020 were $843 million compared to $734 million at March 31, 2019, an increase of $109 million, or 15%, and an increase of $11 million from December 31, 2019.  The increase is due to loan growth and an increase in investment securities and liquid assets over the same period prior-year.

Total loans ended the quarter at $693 million, an increase of $55 million over the same period prior year, and a decrease of $9 million from December 31, 2019.  The increase in loans over March 31, 2019 is attributed to the growth in commercial and industrial loans of $11 million, or 6%, and commercial real estate loans of $48 million, or 12%.  The Philadelphia region has experienced growth in loans outstanding of $69 million, or 41%, over March 31, 2019.   As compared to the prior quarter,  total loans decreased by $10 million, or 1%, due to property sales and the resulting payoffs of commercial real estate as well as the payoff of a key cash secured relationship totaling $14 million.  

Deposits were $659 million at March 31, 2020, an increase of $45 million, or 7%, over March 31, 2019, and declined $23 million from fourth quarter 2019, primarily due to a decline in certificates of deposit from the payoff of a key cash secured lending facility totaling $14 million.  Non-interest bearing deposits increased $22 million, or 24%, with interest-bearing demand and money market accounts increasing $49 million, and $28 million, respectively, over March 31, 2019.  Certificates of deposit decreased $54 million reducing the cost of deposits.  The reduction in certificates of deposit was related to a shift out of wholesale time deposits.

Short-term borrowings increased $25 million and $22 million, respectively, from prior quarter and same quarter prior year.  Long-term borrowings increased $7 million and $30 million, respectively, from prior quarter and same quarter last year.  Both short and long-term borrowings increased due to utilization of FHLB advances for advantageous pricing of funding.

Shareholders’ equity ended the period at $79 million, an increase of $8 million, or 11%, from March 31, 2019, and an increase of $2 million from December 31, 2019.  Regulatory capital ratios for the bank exceeded “well capitalized” at March 31, 2020 and 2019, and December 31, 2019.

Asset Quality

For the first quarter, the provision for loan losses was $825,000, an increase from the fourth quarter’s $544,000.  As mentioned above, additional provision of $300,000 was provided for in the first quarter 2020, due to the economic impact of the closure of local business customers during March and continuing into April and rising unemployment numbers.  The additional provision provided for in the fourth quarter 2019 versus prior quarters was primarily attributable to the increase in nonperforming loans during that quarter.  The allowance for loan and lease losses was $9.1 million and $7.2 million at March 31, 2020 and 2019, respectively.  

The ratio of allowance for loan and lease losses to total loans was 1.32% at March 31, 2020, an increase compared to prior quarters due to the potential impact of COVID-19.  Management believes the allowance for loan and lease losses at March 31, 2020 adequately reflects the risk inherent in the loan portfolio.

At March 31, 2020, the nonperforming assets ratio was 1.34%, down from the 1.45% at the prior quarter end, due to a decline of $502,000 in “Loans 90+ days past due” and a reduction in non-accrual loans. The ratio was up from 0.76% at first quarter 2019.  Nonperforming SBA loans attributed an increase of $1.6 million, while the conventional portfolio experienced a reduction of $2.3 million in nonperforming loans.

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About the Company

An American Banker 2019 and 2018 Best Banks to Work For, three-time Best Places to Work, and Top 50 Fastest-Growing Companies for six years, Centric Bank is headquartered in south central Pennsylvania with assets of $843 million 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. Centric Bank was one of the Top 10 SBA Lenders in the Eastern District of PA at December 31, 2019.  

Founded in 2007, Pennsylvania-based Centric Bank has financial centers located in Harrisburg, Hershey, Mechanicsburg, Camp Hill, Doylestown and Devon, 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, interest rate movements; changes in credit quality; inability to raise capital, if necessary, under favorable conditions; volatilities in the securities markets;  deteriorating economic conditions; and other risks and uncertainties.

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