Centric Financial Corporation Announces 2nd Quarter 2020 Earnings and Results
Harrisburg, Pennsylvania (July 29, 2020) – Centric Financial Corporation (“Centric” or “the Company”) (OTC: CFCX), the parent company of Centric Bank (“the Bank”), today reported net income of $2,259,000, or $0.26 per common share-basic and diluted for the second quarter 2020. For the six month period ending June 30, 2020, net income was $3,800,000, or $0.43 per common share-basic and diluted.
Highlights for the Quarter are described below:
- Total assets ended at $1.04 billion, an increase of $197 million, or 23% over the period ending March 31, 2020;
- Loans outstanding increased $227 million, or 33%, from March 31, 2020 due to on boarding over 1,600 SBA Paycheck Protection Program (“PPP”) loans of $216 million.
- Noninterest bearing deposits increased to $218 million, 91% over March 31, 2020, largely related to the PPP funds and the new relationships on boarded from those same small businesses;
- Net interest margin of 3.60% included the impact of $216 million of PPP loans on the balance sheet for the bulk of the quarter, a decline of 22 basis points from first quarter 2020. The net interest margin without the PPP loans is 3.93% for the quarter and 3.85% annualized.
- Cost of deposits decreased to 0.66% from the first quarter 2020, a reduction of 0.60%, is 0.77% without PPP related deposits and 1.01% annualized.
- Added $975,000 to provision for credit loss, an increase of $150,000 from the first quarter due to continued uncertainty of economic conditions related to COVID 19.
- Recognized $773,000 in deferred income from PPP lending during the second quarter.
- Quarter-to-date Return on Average Assets and Return on Average Equity at 0.94% and 11.22%, respectively.
- Tangible book value per share was $9.27 at June 30, 2020, an increase of $0.28 per share, or 3% over the prior quarter.
Patricia A. Husic, President & CEO of Centric Financial Corporation and Centric Bank stated, “The second quarter results reflected the strong efforts of our team working with the small businesses in our markets and facilitating over $216 million in PPP loans to over 1,600 businesses. The loans helped to retain or bring back over 23,000 jobs. Our team is continuing to work with these businesses and to onboard their full relationship to Centric Bank over time. We have made positive strides in these regards but will continue to be diligent and intentional in our efforts. As a community bank, we are dedicated to helping our communities and customers affected by business closures and long awaited phase-ins of ‘reopening’. Many retail businesses have lost out on months of income and have only recently been able to open, many on a limited basis, others still not at all. The economic ripples of this will continue into the foreseeable future and until the time that these businesses can return to pre-COVID-19 revenue levels.”
Our financial centers opened their lobbies in early June for our customers to conduct business. Since that time, we have seen the transaction volume and deposits increase from our customers. We installed protective equipment in all locations including sneeze guards and sanitization stations, require all employees and customers to wear masks and abide by social distancing guidelines, and enhanced cleaning protocols and frequency. Beginning on July 17, 2020 with the Governor’s new work at home mandate, approximately 90% of our non-financial center teams returned to working remotely. Centric has supported our communities through the food banks across our regions with contributions totaling $46,500 and has provided more than 550 meals to the front line healthcare workers.
Centric has proactively worked with borrowers on payment deferral arrangements specific to their circumstance. Deferrals have been processed for over $220 million in commercial loan balances through June to assist our customers through this unprecedented time and done in accordance with guidance not to be considered troubled debt restructured loans. Outstanding balances of C&I deferrals were $63 million, or 31% of the total C&I portfolio; CRE deferrals totaled $157 million, or 34% of total CRE loans. Other efforts by the Bank to help loan customers have been implementing such actions as waving late charges to those affected, creating a “fee free” skip-a-pay program for consumer customers, and waiving overdraft fees and early withdraw penalties in related circumstances.
Centric increased its provision for credit losses $450,000, or 81%, over the second quarter 2019 and had an increase year-to-date over prior year-to-date of $740,000, or 70%, due to potential impact from government mandated closures related to the pandemic. The coverage ratio for the allowance for loan and lease loss is 1.06% of the total loan portfolio and 1.32% excluding PPP loans.
Results of Operations
Centric’s net interest income was $8,298,000 for the three months ended June 30, 2020, an increase of $1,100,000, or 15%, over the second quarter 2019 and an increase of $1,127,000 over the first quarter 2020. Yield on average earning assets was 4.41%, a decline of 109 basis points compared to the second quarter 2019 at 5.50%. The impact of the lower rate environment with the decline in the prime rate and effective federal fund interest rate over the past four months reduced yields, costs and margin. Recognition of $773,000 of PPP deferred income occurred in the second quarter. Pricing strategies on deposit rates were used to offset the declining yields and effects of PPP loans at a 1% yield. Cost of deposits from the first quarter 2020 to the second quarter 2020 declined 60 basis points to 0.66%. The improvement in the cost of funds was the result of the increase in average noninterest bearing deposits of $106 million primarily from PPP loan funding, and the reduction of expense of $703,000 due to significantly lower funding rates.
Net interest income for the first six months of 2020 was $15,469,000, an 11% increase, or $1,518,000 from the same period 2019. The net interest margin experienced a 25 basis point decline to 3.70% during the first six months of 2020 versus 2019. Interest income on federal funds sold declined $326,000, with $210,000 of this due to reductions in rate, with the remainder of the change due to a decrease in average balances of $17 million from the prior year. Year-to-date average balances on loans increased $138 million, while the yield on total loans declined 77 basis points to 4.96% compared to 5.73% in the prior year, producing an increase of $1,020,000 in loan interest income. The decline in yield on loans was the result of reduced rates year over year and the onboard of PPP loans at 1%. The cost of deposits year-over-year declined $1,225,000 due to reductions in rate and a shift in the composition of the deposit portfolio from an increase in average noninterest bearing deposit balances of $71 million and a reduction in certificates of deposit.
Non-interest income totaled $723,000 for the second quarter 2020, a decrease of $468,000 from the same quarter 2019, primarily due to a decline of $442,000 in gains on SBA loans sold. Compared to the prior quarter non-interest income decreased $49,000. For the six months ending June 30, 2020, non-interest income decreased $546,000 compared to the same period prior year, due to a reduction of $447,000 in gains on SBA loans sold and from a reduction in other fees on loans of $154,000.
Non-interest expense for the second quarter 2020 was $5,196,000, down from the same quarter prior year by $223,000. Salary and benefit costs rose $116,000, or 4%, from the second quarter 2019, professional fees declined by $75,000, and due to the lack of business development venues and sponsorship events taking place during the ongoing pandemic, advertising and marketing expense has declined $117,000. Amortization expense of mortgage servicing rights associated with the SBA portfolio decreased from second quarter 2019 by $125,000, contributing to the decline in other non-interest expense. For the six months ended June 30, 2020 noninterest expense totaled $10,378,000, a minimal increase of 1%, or $91,000. During this period, salaries and benefits increased 7%, or $434,000, due to new staffing at the Devon locations that were added in the latter half of 2019, and an increase of 13% to health insurance premiums. Advertising and marketing decreased by $230,000, and other expense declined $121,000 driven by reduced mortgage servicing rights amortization of the SBA portfolio of $119,000.
Net income for the second quarter totaled $2,259,000 an increase of $315,000, or 16% over the second quarter 2019 and an increase of $718,000, or 47% over the first quarter of 2020. For the six months ended June 30, 2020, net income totaled $3,800,000, an increase of $99,000, or 3%, from the same period last year.
At June 30, 2020, Centric’s total assets exceeded $1 billion for the period end. Total assets reached $1.04 billion, compared to $787 million at June 30, 2019, an increase of $254 million, or 32%, and an increase of $197 million, or 23% from March 31, 2020. The increase was due to onboarding 1,631 SBA guaranteed PPP loans totaling $216 million by the end of the current quarter. This also shifted noninterest bearing deposits to a higher percentage of total deposits, growing $125 million, and interest bearing demand deposits increasing $116 million from June 30, 2019.
Total loans ended the quarter at $920 million, an increase of $257 million over the same period prior year, and an increase of $227 million from March 31, 2020. The increase in loans over June 30, 2019 is attributed to the growth in commercial and industrial loans of $210 million, or 106%, specifically the addition of PPP loans. The Philadelphia region has experienced growth in loans outstanding of $175 million, or 92%, over June 30, 2019, $93 million due to PPP loans, and $74 million in CRE growth.
Total deposits were $851 million at June 30, 2020, an increase of $198 million, or 30%, over June 30, 2019, and an increase of $192 million from first quarter 2020. Non-interest bearing deposits increased $125 million, or 135%, primarily due to PPP loan proceeds. Interest-bearing demand increasing $116 million, or 88%, over June 30, 2019 due to the addition of $90 million in wholesale funding to capitalize on the lowest cost of funding with an average rate of 0.01%. Certificates of deposit decreased $46 million; $32 million were retail CDs less than $250,000.
Short-term borrowings increased $5 million and $30 million, respectively, from the prior quarter end and same period last year. Long-term borrowings decreased $3 million from March 31, 2020, and increased $17 million from June 30, 2019. Both short and long-term borrowings increased over the prior year to take advantage of low cost funding.
Shareholders’ equity ended the period at $82 million, an increase of $8 million, or 11%, from June 30, 2019, and an increase of $2 million from March 31, 2020. Regulatory capital ratios for the bank exceeded “well capitalized” at June 30, 2020.
For the second quarter, the provision for loan losses amounted to $975,000, an increase from the first quarter’s $825,000. Provision expense year-to-date June 2020 was $1.8 million compared to $1.1 million prior year, an increase of $740,000, or 70%. Additional provision was provided for due to the uncertain economic impact of the government mandated closures of non-essential businesses beginning in March, along with qualitative adjustments for unemployment numbers. The allowance for loan and lease losses was $9.8 million and $7.7 million at June 30, 2020 and 2019, respectively. The allowance as a percentage of loans was 1.06% and 1.17% for the periods, respectively. Excluding the effects of PPP lending, the allowance coverage ratio was 1.32% as of the second quarter. Management believes the allowance for loan and lease losses at June 30, 2020 adequately reflects the risk inherent in the loan portfolio.
At June 30, 2020, the nonperforming assets ratio was 1.01%, down from the 1.34% at the prior quarter end, due to a decline of $683,000 in nonaccrual loans as well as an increase in asset size. The ratio was up from 0.95% at second quarter 2019. From the prior quarter end, nonperforming SBA loans were reduced by $2.6 million, while the conventional portfolio experienced an increase of $2.5 million. From the prior year, the increase in restructured loans of $2.2 million and $1.9 million of loans greater than 90 days delinquent was in the conventional portfolio, and the reduction of nonaccrual loans in the SBA portfolio was $1.1 million.
For the second quarter 2020, SBA loans accounted for $3.2 million, or 31%, of nonperforming assets, and 1% of SBA loans outstanding including PPP loans and 9% not including PPP loans. Nonperforming loans in the conventional portfolio are 1% of that portfolio at June 30, 2020.
About the Company
An American Banker 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 is headquartered in south central Pennsylvania with assets of $1.04 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. 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 Devon, and Lancaster, and 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 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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