Centric Financial Corporation (OTC: CFCX), the parent company of Centric Bank, today reported net income for the fourth quarter and year ended December 31, 2020 of $2.8 million, or $0.33, per basic and diluted share and $9.1 million, or $1.05, per basic and diluted share, respectively.
Highlights of Performance:
- Net income increased $335 thousand, or 14%, from third quarter, an increase of $0.05 per basic and diluted share and increased $866 thousand, or 45%, over fourth quarter 2019, an increase of $0.11 per basic and diluted share.
- Net interest margin increased 0.08% over third quarter 2020, ending at 3.64%.
- Cost of deposits decreased to 0.43%, a reduction of 0.04% and 0.97%, respectively, from previous quarter and fourth quarter 2019.
- Return on Average Assets of 1.05% for fourth quarter 2020 increased 0.11% over third quarter and 0.08% over fourth quarter 2019.
- Fourth quarter Return on Average Equity of 13.44% increased 1.55% over third quarter and increased 3.36% over fourth quarter 2019.
- Tangible book value per share increased $0.30 per share, or 3%, from the previous quarter and increased $1.15 per share, or 13% over the fourth quarter 2019.
- Loans outstanding increased $18 million from previous quarter and $261 million from the prior year-end. Excluding PPP, core loans increased $32 million, or 4%, from third quarter and $66 million, over fourth quarter 2019.
Patricia A. Husic, President & CEO of Centric Financial Corporation and Centric Bank stated, "Centric Bank had a strong finish to the year, with the fourth quarter reporting the highest net income for 2020. Our key performance indicators reflected impactful improvements for the year. Return on equity for 2020 increased to 13% while earnings per share grew to $1.05, an increase of 26% from 2019, due to improved net income and the impact of the share buyback program implemented in the year.
We delivered core organic growth of 10% for the year, outside of the $220 million of Paycheck Protection Program Loans that were originated to support the small businesses in the communities we serve and helping to protect over 23,000 jobs. We provided a financial lifeline when these businesses needed it the most. Our team continues to work with these businesses to onboard their full relationship to Centric Bank over time. To date, we have made positive strides by onboarding 31% of those small businesses to core customers and we will remain steadfast in our efforts.
2020 has been a year of grit and resilience for the small businesses in our communities as they demonstrated their ability to pivot and survive. I am incredibly proud of our Centric Team and the role they played being the 'difference makers' in our communities by supporting small businesses with the lifeline from the Paycheck Protection Program. Our Team pivoted with remote work and creating efficiencies with technology during these challenging times. Although 2020 provided its share of bumps in the road, we remained steadfast, disciplined and laser focused on executing our key strategic goals, delivering to our shareholders and earning our independence daily."
Results of Operations – Fourth Quarter
Net income for the quarter ended December 31, 2020 was $2.8 million, or $0.33 per basic and diluted share, an increase of $335 thousand, or 14%, and $0.05 per basic and diluted share over third quarter. Compared to fourth quarter 2019 net income increased $866 thousand, or 45%, and $0.11 per basic and diluted share.
Net interest income for the quarter was $9.3 million, an increase of $379 thousand, or 4%, over third quarter. The increase from previous quarter resulted from core lending of $18 million, reduced funding expenses by 5% and recognized income of $1.2 million from PPP forgiveness which contributed to an increase of 8 basis points in net interest margin, ending the quarter at 3.64%.
Net interest income increased $2.2 million, or 31%, over fourth quarter 2019 and resulted from core lending of $66 million, reduced funding expense of 46%, recognized income of $2.8 million from PPP forgiveness, and reduced yield on earning assets of 1.00% due to the significant $215 million in PPP lending, contributing to a decrease of 11 basis points in net interest margin.
Noninterest income totaled $1.2 million for fourth quarter 2020, an increase of $275 thousand from third quarter. The increase over previous quarter was the result of higher gain on sale of mortgage loans of $54 thousand, increased swap fee income of $18 thousand, gains on the sale of securities of $188 thousand and realized gain on equity securities of $108 thousand.
Compared to fourth quarter 2019, noninterest income increased $50 thousand and was influenced by higher gains on the sales of mortgage loans of $113 thousand, a decline of $299 thousand in swap fee income, increased gain on the sale of securities of $188 thousand and $108 thousand in realized gain on equity securities.
Noninterest expense for the fourth quarter was $6.7 million, an increase of $878 thousand from third quarter. Factors affecting the increase were an increase of $321 thousand in salaries and benefits from commissions earned on mortgage activities and performance-based compensation, increased FDIC assessment of $113 thousand from increased deposit relationships, increased advertising and marketing of $51 thousand, and a prepayment penalty of $189 thousand to retire long-term, high rate, FHLB borrowings.
Compared to fourth quarter 2019, noninterest expenses increased $1.4 million and were affected by increased salary and benefits of $780 thousand as a result of performance-based compensation and the addition of staff in the Devon, Doylestown, and Lancaster offices. FDIC assessments increased by $219 thousand from the results of PPP and core banking activities. MSR amortization expense decreased $187 thousand, loan and collection expense rose by $187 thousand, and other operating expenses increased $183 thousand including the FHLB prepayment penalty above.
Results of Operations – Year to Date
Net income for the year ended December 31, 2020 was $9.1 million, or $1.05 per basic and diluted share, an increase of $1.8 million, or 24%, and $0.21 and $0.22 per basic and diluted share, respectively, over the prior year end.
Net interest income increased $5.7 million, or 20%, over full year 2019 and resulted from core lending of $66 million, reduced funding expense by $3.8 million, or 33%, recognized income of $2.8 million from PPP forgiveness, and reduced yield on earning assets of 0.87% due to the significant $215 million in PPP lending, all contributing to a decrease of 15 basis points in net interest margin, ending at 3.65%. The reduction in funding costs was supported by increased, low-cost, wholesale deposits and increased noninterest bearing deposits.
Noninterest income totaled $3.6 million for the year ended 2020, a decrease of $511 thousand from full year 2019. The decrease over prior year-end was the result of decreased gains on the sale of SBA loans of $631 thousand, decreased swap fee income of $393 thousand, and reduced service charges on deposits of $81 thousand due to less overdraft activity and the waiver of overdraft fees due to the COVID-19 pandemic. These decreases were somewhat offset by increased gains on sale of mortgage loans of $354 thousand, increased gains on the sale of securities of $191 thousand and the gain on equity securities of $108 thousand.
Noninterest expense totaled $22.8 million, an increase of 9%, or $1.9 million over full year 2019. The increase over prior year-end was the result of increased salaries and benefits by 14%, or $1.7 million, from new staffing in the Suburban Philadelphia and Lancaster locations, commission expense for originations on sold mortgages, and increased performance-based expense. Advertising and marketing decreased $237 thousand, or 34%, as a result of COVID related restrictions. Occupancy and equipment expense increased by $191 thousand with the additional leases for the loan production office and the new financial center in Devon, and the expanded space in Doylestown. Director expenses increased $142 thousand or 40% due to higher compensation and an increase in meeting frequency. MSR amortization expense decreased $358 thousand, loan and collection expense rose by $229 thousand, regulatory assessments increased $293 thousand largely related to the increase in PPP relationships, and other operating expenses increased $174 thousand from the prepayment penalty for the retirement of the long-term, high rate, FHLB borrowings.
Provision expense increased $971 thousand from full year 2019 due to the increase of qualitative factors for the economic impact of COVID-19, an increase in classified trends during the year, higher unemployment rates, and core growth of the loan portfolio. The coverage ratio for the allowance for loan and lease loss is 1.09% of the total loan portfolio and 1.33% excluding PPP loans.
Centric continually monitors relationships with loan customers to assess the financial performance of its borrowers. The Coronavirus Aid, Relief, and Economic Security ("CARES") Act and joint regulatory agency statements made provisions to assist borrowers with short-term modifications which are not treated as troubled debt restructurings. Centric has worked with its borrowers through this unprecedented environment and has provided deferrals on a needs-based approach. As of December 31, 2020, CARES Act qualifying loan deferral balances totaled $22.2 million, or 2.3% of total loans, a reduction of $8.3 million from September 30, 2020. The bank has relatively low exposure to high risk industries such as energy and hospitality and has a proven track record with real estate lending and a low loss history in the segment. A large portion of our loan portfolio is well secured and has been underwritten with prudent standards. As the pandemic continues there remains the potential for increased levels of impaired loans throughout all segments of the portfolio.
The allowance for loan and lease losses was $10.5 million and $8.3 million at December 31, 2020 and 2019, respectively. Management believes the allowance for loan and lease losses at December 31, 2020 adequately reflects the inherent risk in the loan portfolio.
At December 31, 2020, nonperforming assets totaled $12.4 million, an increase of $400 thousand from the third quarter, and consisted of a $2.2 million increase in nonaccrual loans and a $1.5 million reduction in loans 90+ days past due. Total nonperforming assets were 1.11% of total assets at year-end, a decline of 0.01% from previous quarter and 0.34% from year-end 2019. Nonperforming assets were consistent with prior year-end in total, with changes in the asset quality mix. Nonaccrual loans increased $5.6 million, restructured loans still accruing declined $2.7 million, with a decline of $2.7 million in loans 90+ days past due.
|At Period End|
|Dec 31,||Sep 30,||Jun 30,||Mar 31,||Dec 31,|
|Asset Quality (in thousands)||2020||2020||2020||2020||2019|
|Nonaccrual Loans||$ 10,811||$ 8,568||$ 4,312||$ 4,995||$ 5,171|
|Restructured loans still accruing||134||460||2,749||2,751||2,785|
|Loans 90+ days past due & still accruing||1,423||2,969||3,477||3,576||4,078|
|Total Nonperforming Assets||$ 12,369||$ 11,997||$ 10,538||$ 11,323||$ 12,055|
|Nonperforming assets/total assets||1.11%||1.12%||1.01%||1.34%||1.45%|
SBA loans that were considered nonperforming at year end totaled $3.3 million, a reduction of $1 million from prior year-end. Nonperforming conventional loans increased by $1.5 million over the prior year-end.
At December 31, 2020, Centric's total assets were $1.1 billion compared to $832 million at the prior year end, an increase of $286 million, or 34%. The growth, year over year, was due to the significant volume of SBA guaranteed PPP loans totaling $195 million in addition to the increase of $66 million in core lending. Centric has again committed to participating in the next round of PPP lending support to its customers and communities.
Total loans ended the year at $964 million, an increase of $18 million from prior quarter. Excluding the $14 million in net PPP loan reductions from forgiveness, conventional loans grew by $32 million. Commercial loans in the conventional loan portfolio increased $5 million and CRE loans increased $27 million. Compared to prior year-end, loans increased $261 million, or 37%, with $195 million in PPP loans outstanding.
Investments in securities increased $11 million over prior quarter with increases in tax free municipals of $12 million, and taxable municipals of $4 million, offset by sales of CMOs and MBS of $7 million. The changes were brought about by execution of a strategy to increase tax-free holdings. Also sold were two held-to-maturity nonperforming bonds of $263 thousand. Year over year the investment portfolio has increased $6 million.
Total deposits ended the year at $926 million, an increase of $39 million from prior quarter. Interest-bearing deposits declined $60 million from September 30, 2020 due to the intentional shift in wholesale deposits to time deposits. Certificates of deposit increased over the third quarter by $106 million due to growth in consumer CDs of $20 million, and by $86 million in wholesale funding.
Year over year deposits increased $244 million, or 36%. Noninterest-bearing deposits increased $87 million, or 79% year over year due to participation in the PPP program and increases in core deposit relationships. Interest bearing deposits and certificates of deposits increased $97 million and $50 million respectively, due to opportunities in low cost wholesale deposits and core customer growth from December 31, 2019. Wholesale funding was leveraged to support PPP lending versus the Paycheck Protection Program Lending Facility ("PPPLF") due to the significant savings in funding costs throughout the year.
Short-term borrowings totaled $20 million at December 31, 2020, a decrease of $5 million from prior quarter. There were no short-term borrowings at the end of 2019. Long-term borrowings totaled $83 million at year end, an increase of $5 million from prior quarter as we continued to leverage low cost, long-term funding. Long-term borrowings increased $13 million over prior year end. Centric participated in the PPPLF in December, borrowing $4.7 million and leveraging low cost, long-term funding sources.
Shareholders' equity increased $3 million over third quarter and ended the period at $85 million. Year over year equity increased $7 million, or 9%. At December 31, 2020 Centric held 354,500 shares of treasury stock repurchased at a cost of $2.5 million under the company's previously announced stock repurchase plan. Tangible book value increased $0.30 per share over third quarter and ended the year at $9.94. Tangible book value increased $1.15 per share, or 13%, from December 31, 2019, as a result of increased earnings and stock repurchases over the period. Centric Bank remains above bank regulatory "Well Capitalized" standards.
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 seven years, and twice 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 CentricBank.com. Connect with them on Twitter, Facebook, LinkedIn, and Instagram.