Community Heritage Financial, Inc. Reports Earnings for the Second Quarter of 2020

MIDDLETOWN, Md., July 17, 2020 /PRNewswire/ -- Community Heritage Financial, Inc. ("the Company") (OTC Pink: CMHF), the parent company for Middletown Valley Bank ("MVB") and Millennium Financial Group, Inc. ("Mlend"), announced today that, for the quarter ended June 30, 2020, the Company earned net income of $849 thousand or $0.38 per share compared to net income of $759 thousand and earnings per share of $0.34 recorded for the second quarter of 2019. Net income for the quarter ended June 30, 2020 as compared to the quarter ended March 31, 2020 was up $339 thousand from $510 thousand in Q1 and earnings per share increased $0.15 per share from $0.23 per share in the first quarter of 2020.

The COVID-19 pandemic has deeply impacted all aspects of life, not only in the United States, but worldwide to a degree that was unimaginable when the outbreak first emerged.  The impact to the economy has been dramatic and has touched every segment of the business world including the banking industry.  As a result of the crisis, the government, in an effort to aid small businesses through the pandemic, introduced the Paycheck Protection Program (PPP) to provide low cost loans, fully guaranteed by the Small Business Administration (SBA).  In support of the community, Middletown Valley Bank fully participated in the program and processed and funded loans for both current customers and non-customers throughout the regions we serve.  As of June 30, 2020, the bank had booked 536 PPP loans with combined principal balances of $63.9 million to small businesses in the region that support approximately 7,536 jobs.  While the pandemic has created challenges to normal operations and balance sheet management, it has further strengthened the bank's goal to foster new relationships and provide absolutely exceptional experiences to our entire customer base and the communities we serve.

Quarterly Highlights – 2Q20 vs 1Q20

• Net book value per share increased by $0.60 per share, or 2.8%, to $22.43 in Q2 of 2020 compared to $21.83 in Q1 of 2020. Tangible book value per share increased by $0.57 or 2.7% to $21.70 from $21.13.
• In Q1 of 2020, to increase on-balance sheet liquidity, the bank added $30 million in FHLB advances and $35 million in brokered deposits. During Q2 of 2020, with the support of strong core deposit growth, the bank was able pay down the entire $30 million of FHLB advances and call $12 million of brokered deposits. The core deposit growth and the bolstering of off-balance sheet contingency funding sources (increased FHLB and FRB discount window borrowing capacity) kept the liquidity position strong at approximately 47% of total funding at the bank level as of June 30, 2020.
• Net loans grew by $73.5 million for the second quarter with $63.9 million coming from PPP loans and $9.6 million from core loan growth. Approximately $3 million in growth was in the residential mortgage segment while CRE and C&I accounted for the remaining growth.
• Deposits grew by $75.2 million for the quarter; a portion of the growth (approximately $9.7 million remaining as of June 30) was related to PPP loan funding related deposits. The remaining growth was attributed to new relationships resulting from the PPP customer interaction and additional deposits from the core customer base.
• Bank Margin fell to 3.48% for the quarter and 3.56% YTD on a normalized basis (excludes impact of PPP loans and fees along with related extra funding through FHLB advances and Brokered deposits).
• Provision expense was $706 thousand for the quarter, up from $358 in the first quarter. Charge-off and non-performing asset metrics remained strong; however, as a result of the pandemic, unemployment and GDP metrics used in the reserve calculation pushed provision expense higher for the quarter. The additional provision moved the "loan loss reserve to total loans" ratio to 1.12% for June 30, 2020.

Quarterly Highlights – 2Q20 vs 2Q19

• Net book value per share increased by $1.51 per share or 7.2% to $22.43 from $20.92 as of June 30, 2019. Tangible book value per share increased by $1.52 or 7.5% on a year-over-year basis.
• Net loans grew by $137.2 million on a year-over-year basis with $63.9 million attributed to the PPP loans. Excluding the PPP loans, core loan growth was $73.3 million or 19.2% year-over-year.
• Deposits grew $171.7 million compared to Q2 of 2019. Excluding additional brokered deposits and PPP funding related deposits, core deposits increased $127.0 million year-over-year or 30%.
• Similar to quarter-over-quarter net interest margin, normalized year-over-year margin decreased by 14 basis points from 3.70% to 3.56% on a year-to-date basis due to falling asset yields related to Fed rate cuts and the addition of on-balance sheet liquidity.
• Provision expense increased by $348 thousand compared to Q2-2019. Loan growth and economic metrics due to the pandemic (unemployment, GDP) account for the increased provision expense.
• Non-interest income grew by $665 thousand for the quarter compared to Q2-2019. Strong mortgage activity and secondary sales income from Mlend account for the increase.
• Non-interest expense for Q2-2020 grew by $324 thousand when compared to Q2-2019. Increased staffing and processing costs related to rapid loan and deposit growth accounts for most of the increase on a year-over-year basis.

Dividend

A dividend of $0.04 per share was declared by the Board of Directors on July 17, 2020 for stockholders of record as of July 31, 2020 and payable on August 7, 2020.

This press release may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements can generally be identified by the use of forward- looking terminology such as "believes," "expects," "intends," "may," "will," "should," "anticipates" or similar terminology. Such statements, specifically regarding the Company's intentions regarding transparency, growth and market expansion, are subject to risks and uncertainties that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. Potential risks and uncertainties include, but are not limited to, changes in interest rates, stock market liquidity, deposit flows, loan demand and real estate values, as well as changes in economic, competitive, governmental, regulatory, technological and other factors which may affect the Company specifically, its existing and target market areas or the banking industry in general. The realization or occurrence of these risks or uncertainties could cause actual results to differ materially from those addressed in the forward-looking statements.

Community Heritage Financial, Inc.
Robert E. (BJ) Goetz, Jr.
President & Chief Executive Officer
301-371-3055
www.communityheritageinc.com

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SOURCE Community Heritage Financial, Inc.