Centric Financial Corporation Announces Second Quarter 2022 Earnings

Net interest income for the quarter was $9.8 million, an increase of $667 thousand over first quarter.  The increase in the federal funds rate drove other interest income up $112 thousand with a decline in average balances.  Organic loan growth of $29 million coupled with rising rates increased interest on loans by $525 thousand over first quarter.   The cost of deposits remained consistent with first quarter while balances on borrowings declined $15 million at the end of the first quarter, reducing interest expense on borrowing in the second quarter by 15%. 

Organic loan growth expanded $75 million, loan yields increased by 6 basis points, and PPP deferred fee income declined $1.1 million compared to the second quarter 2021, culminating in a decline of $938 thousand in interest on loans.  Interest expense decreased by $223 thousand due to reduced cost of funds and a shift in the mix of deposits and reduced borrowings from the second quarter 2021 contributed to the reduction of net interest income of $626 thousand, producing a net interest margin of 4.06%, which is an increase of 12 basis points over the same period 2021.

Noninterest income totaled $1.0 million for the second quarter, an increase of 11%, or $100 thousand, over the prior quarter, driven by a reduction in mortgage related income of $149 thousand which was more than offset by other loan fee income, increasing $235 thousand.  Compared to the second quarter 2021, noninterest income increased $105 thousand, primarily due to increased swap referral fee income, increased service charge on deposits, and second quarter 2021 having a loss on equity securities of $80 thousand offset somewhat by a reduction in other loan and servicing income of $83 thousand.   

Noninterest expense of $6.6 million for the second quarter increased over first quarter by $448 thousand, or 7%.  Salaries and benefits increased $196 thousand due to the expansion of the lending teams in the Philadelphia area and supporting credit personnel, as well as filling vacancies in the Cash Management team.  Increases of $264 thousand in other non-interest expense were across areas such as loan and collection expense, travel, and SBA mortgage servicing rights amortization expense, partially offset by a reduction in FDIC assessment expense by $149 thousand. 

Compared to second quarter 2021, noninterest expenses increased 4%.  Salary and benefits and occupancy and equipment were relatively flat.  FDIC assessments decreased $155 thousand as peak deposits from PPP efforts and wholesale funding which supported the PPP lending have declined.  Loan and collection expense increased $100 thousand due to core lending efforts, and software and licensing costs increased $63 thousand. 

Results of Operations – Year to Date

Net income for the first six months of 2022 ended at $5.7 million, or $0.67 per diluted share, a decrease of $1.5 million over the prior year, as the reduction in PPP deferred fees declined by $2.5 million year over year due to PPP loan forgiveness of $131 million.  Excluding PPP deferred fees for both years, core net income before tax increased by $620 thousand, or 11%.

Net interest income decreased $1.8 million to $18.9 million over the six months ended June 30, 2021.   Interest and fees on loans decreased $2.4 million, primarily due to the $2.5 million decline in PPP deferred fee income.   Interest income on commercial real-estate loans increased $1.3 million, or 10%, over the same period last year, largely driven by volume.  Total interest expense declined $550 thousand, or 19%, from last year.  Reduction in rate and balances in certificates of deposit contributed $530 thousand to the decrease from last year.  Increases in money market deposit balances and increased rates of 6 basis points somewhat offset the benefit by $259 thousand.  Net interest margin for the period ending June 30, 2022, was 3.98%, a two basis point increase over the first six months of 2021.

Noninterest income totaled $2.0 million for the first six months of 2022, consistent with the same period 2021 with changes in revenue streams.  Loan fees increased 50%, or $292 thousand, along with swap referral fees increasing $223 thousand.  Gain on loans held for sale decreased $452 thousand. 

Noninterest expense totaled $12.8 million, consistent with the $12.6 million last year.  Salaries and benefits declined 3% due to lower commission on mortgage activity, open positions during 2022 and health insurance expense reduction of $98 thousand.  Data processing services increased 18% from expanded utilization of products on the Bank's core operating systems.  Advertising and marketing expenses were reduced by 33%.  FDIC assessments were reduced in 2022 by $195 thousand connected to the release of wholesale funding at the end of 2021.  Other operating expenses increased $230,000, with increases in license fees and software maintenance, travel and lodging, and SBA mortgage servicing rights amortization

Asset Quality

Provision expense of $850 thousand for the first six months of 2022 was consistent with last year's $900 thousand.  The coverage ratio for the allowance for loan and lease loss increased to 1.46% compared to $1.15% last year, or 1.36%, excluding PPP loans which declined by $131 million.  The allowance for loan and lease losses amounted to $13.2 million and $11.1 million at June 30, 2022 and 2021, respectively.  Management believes the allowance for loan and lease losses at June 30, 2022 adequately reflects the inherent risk in the loan portfolio.

At June 30, 2022, nonperforming assets totaled $12.6 million, relatively flat from the first quarter and an improvement of $2.5 million over June 30, 2021.  Compared to last year, loans 90+ days past due were reduced by $4.7 million with $1.3 million moving into nonaccrual.  Other changes to nonaccrual loans consisted of SBA loans being processed for collection and reimbursement of the guarantee, while other relationships moved into nonaccrual status due to the hardships encountered during 2021.  SBA loans that were considered nonperforming at June 30, 2022 totaled $2.9 million, a decrease of $559 thousand from a year ago.  Nonperforming conventional loans also declined by $1.9 million from a year ago.  Total nonperforming assets were 1.21% of total assets at quarter end, a reduction of 11%, from June 30, 2021.

Balance Sheet

At June 30, 2022, Centric's total assets were $1.0 billion compared to $1.1 billion at June 30, 2021, a decrease of $75 million and consistent with March 31, 2022.  Cash and cash equivalents were reduced by $9 million coinciding with the reduction in borrowings of $16 million.  Total loans outstanding decreased $56 million as a result of PPP loan forgiveness. 

Total loans ended the period at $904 million, an increase of $18 million from prior quarter.  Organic loan growth was $29 million.  Commercial loans increased $4 million and CRE loans increased $25 million.  Compared to the same period last year, PPP loan balances forgiven amounted to $131 million, resulting in core loan growth of $75 million, or 9%.  CRE grew $51 million and commercial loans increased 17%, or $38 million.  Remaining PPP loan balances outstanding were $11 million at period end.  Annualized core loan growth is 14% through June 30, 2022.    

Investments in securities declined from the prior quarter due to principal payments on mortgage-backed securities as well as a called debt security, and also decreased over last year by $3 million primarily due to the sale of an equity security late in 2021. 

Total deposits ended the period at $879 million, similar to the prior quarter in balances and mix.   From June 30, 2021, money market and savings grew 26%, or $58 million, while noninterest bearing deposits remained consistent.  Certificates of deposit and interest-bearing demand deposit balances declined $88 million and $40 million, respectively, largely due to a reduction in wholesale funding of $110 million at the end of 2021.

Short-term borrowings of $10 million matured in the fourth quarter 2021 and were not replaced as liquidity remained strong.  Long-term borrowings totaled $55 million at quarter end, consistent with the prior quarter and decreased $6 million from the same period last year. 

Shareholders' equity increased $2.5 million over first quarter 2022 and ended the period at $100 million.  Year over year, equity increased $8 million, or 9%.  At June 30, 2022, Centric held 275,497 shares of treasury stock repurchased under the Company's stock repurchase plan during 2020.  No new treasury shares have been purchased in 2022.  Tangible book value increased $0.28 per share over first quarter and ended the period at $11.72.  Tangible book value increased $0.93 per share, or 9%, from June 30, 2021, as a result of increased earnings over the period.  Centric Bank remains above bank regulatory "Well Capitalized" standards.

Centric Financial Corporation
Consolidated Balance Sheet (Unaudited)
	At Period End
	Jun 30,	Mar 31,	Jun 30,
(Dollars in thousands)	2022	2022	2021
Assets
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