C E N T R I C F I N A N C I A L
C O R P O R A T I O N
A N N U A L R E P O R T 2 12
OU R MI SSION
Centric Bank is a locally owned, locally loaned community bank that provides a
variety of core financial services to businesses, professionals, and individuals. We
promise our customers immediate, direct access to our bank decision makers
and deliver the finest personalized service in the industry. Centric has committed
people and resources to enrich the communities where we live and work. Because
trust is our most important commodity, we are focused on building and sustaining
long-term generational relationships with our customers, our community, our
employees, and our shareholders. In every transaction, We Revolve Around You.
OU R VISI ON
We aspire to become the locally owned, independent, community bank of choice
for small and medium-size businesses, professionals, and individuals in central
Pennsylvania. We will combine steady growth, consistent earnings, and firm
control of risk factors to provide safety for our depositors. Our people will be the
difference in establishing consistency in earnings and enhanced shareholder value.
CORE VA LUES
We trust our principles are clear to every customer from the moment you enter
our facilities or speak to a Centric Bank representative:
n We value an uncompromising dedication to understanding and meeting our
clients’ financial needs.
n We recognize and reward the contributions of our team members and believe
that qualified, loyal, and committed professionals are our most valuable asset.
n We practice prudent business planning and cost management strategies to
ensure financial viability and responsible growth.
n We embrace change and continually seek ways to provide quality, cost-
effective services that meet or exceed our clients’ expectations.
n We seek to establish a relationship of trust and respect with our clients and
value integrity as an organization and as individuals.
n We are committed to providing the best possible service to our clients. We will
go above and beyond what is required to attract and retain cherished business
relationships. Our goal is to build relationships. We Revolve Around You.
The Art of Banking
Growing a community bank means growing a strong
neighborhood, and that requires nurturing equal parts art
and science. The science part comes naturally to us—that’s
the numbers and business analyses, and we don’t mind
saying that we excel in that regard. The art side; however, is
where we truly differentiate ourselves. It’s where the people-
to-people relationship begins and stereotyped banking ends.
If we only focused on the numbers, we would be identical to
every other financial institution. But at Centric Bank, a home
mortgage, a medical practice financing package, or a line of
credit means we’re undergirding the community fabric. We’re
investing in people, big ideas, and optimism. That’s the art of
banking.
4320 Linglestown Road | Harrisburg, PA 17112 | (717) 657-7727 | Fax (717) 657-7748 | www.centricbank.com
Centric Financial Corporation | 2012 Annual Report
Letter to Our Shareholders, Customers, and Friends .................................................................................................................................................................. 2
Our Triumphs in a Year of Economic Challenges, Increasing Complexity,
and Unrivaled Federal Regulations ..................................................................................................................................................................................................................... 4
Centric Financial Corporation: Financial Report 2012
Management’s Discussion and Analysis ...................................................................................................................................................................................................... 12
Independent Auditor’s Report ..................................................................................................................................................................................................................................... 17
Consolidated Balance Sheet ............................................................................................................................................................................................................................................ 18
Consolidated Statement of Income ...................................................................................................................................................................................................................... 19
Consolidated Statement of Comprehensive Income ...............................................................................................................................................................20
Consolidated Statement of Changes in Stockholders’ Equity................................................................................................................................... 21
Consolidated Statement of Cash Flows ........................................................................................................................................................................................................ 22
Notes to Consolidated Financial Statements .......................................................................................................................................................................... 23-49
Centric Bank Leadership Team ..................................................................................................................................................................................................................................... 50
Centric Bank Financial Centers ..................................................................................................................................................................................................................................... 52
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To Our Shareholders, Customers, and Friends:
From strong roots grow great communities. That was Centric Bank’s banner for 2012—a reminder of how we
grow and why, with a steady focus on our mission of being a lifetime financial services provider.
Although media across the globe broadcasted blame and disdain for banking and bankers, this was a year of
triumph for our team and our customers. We continue to break ground both physically with our new footprint in
the Hershey community, and company-wide with fresh faces and new services to “revolve around you.”
At each of our three financial centers, we combine old-fashioned respect and
gratefulness with new channels of banking. When business succeeds, we
succeed, and our shareholders succeed—not only with a strong Return on
Investment, but with the important Return on Value of community pride and
loyalty.
Your stories, challenges, and successes are vital to us. We heard heartwarming
testimonials of dreams achieved and business triumphs, some of which are
shared by customers on these very pages.
Because we live where we lend, we see firsthand the services and products
that result from our business decisions. Helping young entrepreneurs realize
their lifelong dream of opening a new restaurant in Harrisburg—and to great
acclaim—is a source of pride for us.
Donald E. Enders, Jr.
Chairman of the Board
We know who powers the economy and who’s creating jobs—small business
owners. And we’re honored to have a part in putting Americans back to work.
We remain the outliers in organic banking growth with deposits topping $271
million, reflecting an increase of 21.4% over the previous year. We continue to
lead in lending with loan growth at 15.9%; infusing $79.4 million in new loans
to businesses and individuals in central Pennsylvania. Loans at December 31
totaled $208.5 million, as compared to $179.9 million the previous year. Assets
topped $302 million at year end, touting a growth of 19.2% over 2011.
Net income before tax expense for 2012 was $1.0 million, as compared to
$959,000 in 2011. 2012 was the first year in which Centric Bank reported tax
expense. Income tax expense was $301,000, as compared to a tax benefit of
$446,000 for 2011. Net income after taxes for 2012 was $708,000, as compared
to $1.4 million in 2011.
Patricia A. Husic
President & CEO
As a few investors struggled to succeed, we experienced a past due and
nonperforming loan increase in 2012, specifically relating to investment
properties in the City of Harrisburg. Total past due loans were 2.79% of total
loans, as compared to 1.74% in 2011. Although Centric Bank experienced a rise in nonperforming loans
and delinquency ratios, we were comparable to our local banking peers and more favorable than those
around the country.
During 2012, a cost savings of $276,000 was realized over the previous year from the Small Business Lending
Fund. As a direct result of Centric Bank’s loan growth, we qualified for the lowest dividend rate of 1%.
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To our shareholders, we remain laser-focused on the bottom line for our bank’s continued health amid
complicated and volatile regulations. We have added enhancements to our credit and risk management and
loan operations areas by strengthening lending policies and procedures with more stringent underwriting,
especially in specific segments of our commercial real estate portfolio. We have welcomed five additional
employees to our credit and risk and loan operations teams and are poised for prudent growth.
Centric Bank celebrated several significant successes in 2012:
n In May, we unveiled our newest, innovative service—Doctor Centric Bank—to deliver private banking and
concierge services to the region’s health care professionals. From practice financing and equipment purchases,
to commercial real estate packages, we provide direct-to-doctor care to ensure all financial assets remain strong.
n To meet our customers’ full-access needs, we have integrated mobile banking to unveil in 2013.
n We added new hires in every sector to support and sustain our growth.
n Named one of Pennsylvania’s Top 50 Fastest Growing Companies for the second consecutive year, we are
steadily creating new opportunities for businesses to grow and prosper in our region.
n In August, we moved to our new operations center on Crums Mill Road, Harrisburg, expanding our
infrastructure to support our physical and financial growth.
n Construction began on the Hershey financial center in November, with plans to open in May 2013.
n We combined steady growth, consistent earnings, and firm control of risk factors to provide safety for
our depositors.
n As part of our communications strategy and to meet our customers’ information needs, we established a
social media presence on Twitter, Facebook, and LinkedIn for both Centric Bank and Doctor Centric Bank.
Leading by example, our community roots run strong and deep, and it remains our privilege to give back to our
neighborhoods by supporting these and many other fine organizations:
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n Toys for Tots Parade and Collection
n Central Pennsylvania Food Bank
n The Lion Foundation
n The Arc of Dauphin and Lebanon Counties
n Leukemia and Lymphoma Society
n American Heart Association
n Harrisburg Regional and West Shore Chambers of Commerce
n Bishop McDevitt, Central Dauphin, Susquehanna Township, and Camp Hill school activities
n Big Brothers Big Sisters of the Capital Region
n Colonial Park Rotary
We are grateful to you for your unwavering belief and investment in Centric Bank. None of these achievements
would have been possible without our shareholders’ confidence in our mission and future. Thank you for
partnering with us to deliver “revolutionary” banking services. At every level, We Revolve Around You.
Sincerely,
Donald E. Enders, Jr.
Chairman of the Board
Patricia A. Husic
President & CEO
f r o m s t r o n g r o o t s g r o w g r e a t c o m mUn i t i e s
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Our Triumphs in a Year of Economic Challenges, Increasing
Complexity, and Unrivaled Federal Regulations
Setting Our Customers Up for Small Business Success
We believe small business opportunities and their vitality undergird strong, healthy communities. From our
inception in 2007, we’ve viewed Centric Bank as our region’s economic epinephrine and a driver for economic
stability. Small business is big business to us.
In fact, it’s where we make life-changing impact. Our local lending brings a holistic view to every business; we
evaluate profitability, potential, and passion. And we ensure that even unplanned financial situations can be
worked through, rather than structuring a loan package with financial burdens beyond a business’s capacity to
repay. “Streamlined our systems” and “saved our company” are familiar praises from our customers.
“ We truly appreciate Centric Bank’s
outstanding level of customer service.
Our account management team always
goes the extra mile and gives us
everything we need to easily manage
our banking. They are knowledgeable,
prompt, and courteous. Their banking
solutions have streamlined our deposits
and reconciliation process. Plus, Centric’s
attention to service demonstrates their
concern for small business and has saved
our company hundreds of dollars.”
J E S S I C A E . M E Y E R S
Owner/President, JEM Group
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“ In 1999, I started my own law practice and title insurance
agency in central Pennsylvania. Since then, I have formed
various real estate investment companies. As a small
business owner, I cannot stress enough how important
it is to have a valued and trusting relationship with a
lender of Centric Bank’s caliber.
Not only were their interest rates and fees competitive,
the service I received throughout the lending process
was exceptional. I have been extremely pleased with
Centric Bank’s customer service, honesty, and integrity
since becoming a client and have greatly expanded
my relationship with them. Thank you to Patti Husic,
Paul Zwally, and the entire Centric Bank team for the
kindness and generosity you have provided to me, my
family, and my businesses.”
DA R R I N C . D I N E L L O, E S Q U I R E
Owner, Law Office of Darrin C. Dinello
f r o m s t r o n g r o o t s g r o w g r e a t c o m mUn i t i e s
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Customer-Centric
In the banking world, one of the most powerful indicators of a growing economy is a surge in consumer
confidence—that magic equation of people + positivity. And it’s a Key Performance Indicator for economists,
bankers, and Wall Street. How do the stars align to create confidence? It begins with a laser-focus on the men
and women we call customers.
As we add and expand the services that our entrepreneurs and small businesses depend on, we see a steady rise
in confidence in every service area. We Revolve Around You has always been more than a tagline for us. For six
years, it has been our guiding principle and a sentiment that cannot be manufactured or contrived.
In every transaction, our customers agree that a relationship with us is “unlike any bank [they] have dealt with,”
and we continue to be a “passionate neighborhood partner.”
Since 2007, we have built our banking services on trust—trust in the integrity of our customer relationships,
trust in the quality of products we provide, trust in our commitment to the community. It’s the sense of
reassurance we hope every person experiences when you walk into one of our Centric Bank Financial Centers
and are greeted by name; or the relief you feel when you hear our lending advisor say, “We can help you on your
business journey. Let’s do this.”
“ We had finally found our dream
house but were disappointed
with the loan packages that banks
were offering. And now it seemed
that the home of our dreams was
becoming out of reach.
Sensing our frustration, John Fox
of FoxBuilt Homes suggested we
speak to the team at Centric Bank.
We were thrilled to meet with Paul
Zwally. He understood that after
12 years of medical school and
surgical training, our financial
situation was unique. He listened
to our ideas and concerns and
created a loan package tailored
to our needs.
With help from Paul and Centric Bank, we began construction on our new home. We can’t wait to move in!”
D R . T O M A N D KR I S T I N SA M S O N
A N D F OX B U I LT H O M E S
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Hitting Our Stride
As we break ground in Hershey for our fourth and newest financial center, grow our Doctor Centric Bank brand,
and expand our mortgage services, we strive to be the lender with big ideas and sensible risk. Hometown
lending means we understand the needs of a medical company, a marketing firm, a hotelier, a printer, a dental
practice, a manufacturer, a construction company, and a woman- or minority-owned business.
“ In our experience, most banks do not
understand the needs of the limousine industry.
In 1982, when Jim’s idea of a ‘limousine
company for Harrisburg’ began to materialize,
the financial institutions we met with were
unwilling to help us. Had it not been for our
neighbor who was a bank manager, we’re not
certain that Unique Limousine Service would
have ever gotten off the ground. As we grew,
we continued to face financing challenges with
several banks.
Then Centric Bank came along, and all of that
changed! They became our personal
bankers. Mike Watson and the Centric Bank
team took the initiative to learn more about
the luxury transportation industry and remain
committed to keeping Unique Limousine a strong, family owned company.
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Our relationship with Centric Bank is unlike any other bank that we have dealt with. We look forward
to growing with them as our ‘go to’ bank!”
J O S I E A N D J I M S A L I N G E R
Owners, Unique Limousine Service
In 2012, we hit our stride in three market sectors:
n Banking for Business—The engine of our economy “revolves around” the ideas and innovations of small
business. We lend and lead our entrepreneurs to success.
n Banking for Community—Supporting events, schools, and fundraisers builds a strong neighborhood
foundation, the essence of community banking.
n Banking for Life—We know that each season demands unique sets of financial knowledge, resources, and risk
assessments. It is our privilege to serve three and four generations of customers. Offering financial guidance
and services for the young, mature, families, retirees, learners, home buyers, and business builders is an honor
we take seriously. From new life to retirement life, Centric Bank is a partner for life.
f r o m s t r o n g r o o t s g r o w g r e a t c o m mUn i t i e s
Connecting Person-to-Person
Balancing our intensity for portfolio numbers and predictions with an equal intensity and respect for our
customers keeps us focused on our roots. We’re in the people business. 2012 saw a stronger commitment to
connecting with our customers in the channels you communicate in.
We have increased our presence and brand on Facebook, Twitter, and LinkedIn. During Hurricane Sandy’s
impact, we used a combination of new and traditional communications to keep every customer informed, as
news happened. With over 1 billion users on Facebook alone, its importance in first-person connectivity is clear.
Look for banking news, regional updates, and community support on all our social media channels.
In 2012, you may have noticed one of your lenders waving a flag in the Camp Hill Memorial Day Parade; grilling
hot dogs at Silver Spring Financial Center to show appreciation for your trust and faith in us; or collecting toys
and canned goods for Toys for Tots on Linglestown Road.
While we keep a keen eye on global financial
trends, our primary attention is squarely in our
backyard—Dauphin and Cumberland counties.
We pride ourselves on making you feel welcome
and your voice heard! Whether a customer calls,
tweets, walks through our doors, or we meet at a
community event, our true measure of success is
in our reputation and the personal relationships
we develop. Please say “Hello!” when you see us
in your neighborhood!
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“ As a stronghold for foundation and non-
profit banking, Centric Bank is a passionate
neighborhood partner, deeply invested in
the people and businesses that call central
Pennsylvania home. The Centric team works,
shops, and lends locally. We truly value the
banking services they provide and the guidance,
knowledge, and support they offer to our schools
and the entire Camp Hill community.”
R O B I N J O N E S , Executive Director of the
Camp Hill Lion Foundation
DAV I D R E E D E R , Camp Hill School District
Superindendent
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Safety and Soundness
While the banking industry continued to be indicted globally, our reality of lending with honesty, leading with
purpose, and growing with care remains a financial stabilizer for customers.
Safety and soundness is more than a banking buzz word for us, it’s our culture. For an organization to operate
with safety and soundness, its people have to understand their guiding principles, business practices, and the
communities they serve. In 2012, risk management was pre-eminent in every loan decision and investment.
n We banked on the American spirit reimagined on Market Street, Front Street, and Technology Drive.
n We banked on positive attitudes, hometown pride, and fresh ideas.
n We banked on schools, medical practices, boroughs, construction companies, restaurants,
first responders, and neighbors.
We banked on YOU!
“ Centric Bank walked us through the SBA loan
process with patience and precision. We
instantly felt that they were as passionate
about our business as we are. More than a
loan, this is a true partnership. Our dream
of opening up a restaurant in Harrisburg
just came true!”
A DA M & DA N I E L L E S T U R G E S
Owners, The Sturges Speakeasy
To our shareholders, we remain driven by the
bottom line for our bank’s continued safety and
soundness amid complicated and unpredictable
regulations.
In a new normal, we are marching into our sixth year lending to small businesses with
big ideas and individuals ready to go further.
Our customers did not wait in limbo for pent-up demand to return; nor were they mitigating risk by ignoring
opportunities. Our 50 Fastest Growing Companies award in central Pennsylvania was evidence that our
customers depended on us to fuel their dreams. And thanks to the support from our shareholders and the
combined financial expertise of our team, we delivered!
f r o m s t r o n g r o o t s g r o w g r e a t c o m mUn i t i e s
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At Doctor Centric Bank, our newest subsidiary, physicians started practices with the most advanced technology
and patient-friendly environments. From think to build, we loaned more than $3.7 million to physicians, their
practices, and health care professionals. As your private banker, we take care of your finances so you can focus
on what really matters—the people who depend on your care.
Controlled and sophisticated underwriting standards and credit and risk management practices ensure that
our customers are well-equipped and financially capable of supporting their investments—even through
challenging financial conditions.
When business needs change, our services will support your change. When lending requirements shift, you can
depend on our experienced team to lead the way to deal-making and success.
As a lifetime financial provider, we have the resources to lend big and connect small. In a world where large,
impersonal institutions fall short, we are your financial home stretch!
“ I was fortunate to meet the staff
at Centric Bank in 2012 while
transitioning into my own dental
practice. When they described the
level of service provided by their
subsidiary, Doctor Centric Bank,
I was amazed.
As I developed my dental office,
Doctor Centric Bank helped me every
step of the way, providing me with
business planning and financing
options. They truly understood my
financing needs as a health care
provider. The staff is always available
to answer any of my questions; and
if they don’t know, they promptly
find the answer and return my call as
soon as possible.
I am so pleased to have Doctor Centric Bank caring for my business and am happy to recommend them
for any personal banking or business banking needs.”
MI C HA E L P. KO VA L E S K I, D. M . D.
Owner, Kovaleski Dental Suite, LLC
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Management’s Discussion and Analysis
Please note that in this discussion we have made forward-looking statements that are subject to risks and
uncertainties. We intend such forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act of 1995. These statements include
information concerning the future financial results of Centric Financial Corporation and Centric Bank. Many
factors could affect these future results including economic, political, regulatory, or operating risks. In addition,
competition and rapidly changing technology could also impact our future operations. Our analysis of these
risks may also be incorrect and our strategies to address them may be ineffective.
BA NK PERFO RMA NC E
Centric’s performance for 2012 delivers another year of double-digit growth and reaching key milestones.
Centric was recognized as number 14 of central Pennsylvania’s Top 50 Fastest Growing Companies in 2012,
moving up 9 positions from 2011. Our strong foundation in our communities has provided Centric the ability to
cultivate and deepen strong relationships which are the roots of our success.
FINA NC IAl POSI TI O N
Loans
Centric Bank’s primary earning asset is loans. As depicted in the following graph, loan growth was 15.9%
during 2012.
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CENTRIC FINANCIAL CORPORATION
$179,942
$205,591
(15.9% growth)
TOTAL LOANS
(in thousands)
$250,000
$200,000
$150,000
$100,000
$50,000
$0
12/31/2011
12/31/2012
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Our primary area of strategic focus is in loans to small and medium-sized businesses and their owners. This focus
is reflected in the level of commercial loans detailed in the following graph:
CENTRIC FINANCIAL CORPORATION | LOAN MIX AS OF DECEMBER 31, 2012
Other Commercial Loans
16%
Commercial Real Estate
70%
Residential Real Estate
6%
Home Equity Loans
8%
The focus on commercial lending has been coupled with prudent loan underwriting standards and enhanced
relationship monitoring. This helps to ensure that loans being recorded are solid and that proactive efforts can
be taken to address any potential credit deterioration identified in the loan portfolio.
Credit Quality
Prudent underwriting and related controls along with continual monitoring will ensure the long-term
maintenance of overall loan portfolio credit quality. Centric experienced an increase in nonperforming and past
due loans in 2012. The increase was related to investment properties in the City of Harrisburg in the commercial
real estate portfolio. Even though we have seen an increase in nonperforming as a percent of total loans, we
are comparable with the average of the banks in our area for the fourth quarter of 2012. Centric continues to
manage past due and nonperforming loans as a percent of total loans which is reflected in the following graph:
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NONPERFORMING ASSETS AND PAST DUE LOANS AS A % OF TOTAL LOANS
2.79%
1.94%
n Past Due 30-89 Days
n Nonaccrual Loans
n Total Past Due and Nonperforming Loans
1.74%
1.21%
0.52%
0.85%
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
12/31/2011
12/31/2012
Nonaccrual loans (included in nonperforming loans above) have a negative impact on the bank’s earnings as
these are assets that require funding, but do not provide current income. These loans are primarily secured with
real estate, and management believes that potential losses related to these loans have already been provided
for in the allowance for loan losses as discussed further below. Management continues aggressive collection
efforts with these nonaccrual loans, however, this collection process is extremely lengthy and is often delayed by
bankruptcy proceedings.
f r o m s t r o n g r o o t s g r o w g r e a t c o m mUn i t i e s
Allowance for Loan Losses
The allowance for loan losses is maintained at a level considered by management to be adequate to provide
for losses that can be reasonably anticipated. This evaluation is inherently subjective and requires significant
estimates that are subject to change.
During 2012, the bank had net charge-offs of $917,000.
Investment Securities
Periodically, the bank invests excess funds in investment securities. Investment securities are part of the overall
balance sheet management strategy. These investments serve as a source of liquidity through paydowns,
maturities, and sales to fund future loan growth and are also utilized to secure public funds deposits as required
by state law. These investments are an alternative to overnight federal funds investment and provide an offset to
a liability sensitive risk position. The bank’s investment securities consist of U.S. agency, mortgage-backed, and
municipal securities. The securities have a relatively short average life. Investments are thoroughly analyzed prior
to purchase and the portfolio is subject to ongoing monitoring. The bank recognized $156,000 in other-than-
temporary-impairment of the investment security portfolio in 2012.
Deposits
The most critical source of funding for the bank is its deposit base. We continue to pursue core deposit growth
including acquiring deposit accounts with new loan relationships and look to our local market to expand
the deposit base. We have been successful in funding our loan growth with growth in deposits. The bank
consistently monitors its deposit pricing and that of its competitors. The following graph depicts the growth in
total deposits.
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CENTRIC FINANCIAL CORPORATION | DEPOSIT GROWTH
$223,587
$271,439
(21.4% growth)
$300,000
$250,000
$200,000
$150,000
$100,000
$50,000
$0
12/31/2011
12/31/2012
Borrowings
An additional source of funding for the bank is borrowings through the bank’s membership in the Federal Home
Loan Bank of Pittsburgh (FHLB). The FHLB provides a ready source of funding at flexible terms.
Stockholders’ Equity
Our stockholder equity continues to be in excess of minimum total capital levels required by regulatory
authorities. Please see Note 12 to the Consolidated Financial Statements for additional details.
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R ES UlTS OF OPERATI O NS
Net Interest Income
Net interest income is the amount by which interest earned on loans, investment securities, and other earning
assets exceeds the interest paid on deposits and borrowings. This is Centric’s main source of income and it is
summarized in the following table for the year ended December 31, 2012:
DISTRIBUTION OF ASSETS, LIABILITIES, AND STOCkHOLDERS ’ EQUITy
INTEREST RATES AND INTEREST DIFFERENTIAL
(in thousands)
year Ended December 31, 2012
Interest
Rate
ASSETS:
Deposits in Other Banks
Federal Funds Sold
Investment Securities (1)
Loans (2)
Restricted Invest. - Bank Stocks
Total Earning Assets
Allowance for Loan Losses
Other Nonearning Assets
TOTAL ASSETS
LIABILITIES and STOCKHOLDERS’ EQUITY:
Deposits:
Interest-Bearing Demand
Savings
Time
Total Deposits
Long-Term Debt
Total Interest-Bearing Liabilities
Demand Deposits
Other Liabilities
TOTAL LIABILITIES
Stockholders’ Equity
Average
Balance
$ 8,709
30,482
24,054
198,145
926
262,316
(2,584)
19,187
$ 278,919
$ 39
79
567
10,712
2
11,399
$ 128,440
19,602
82,724
230,766
$ 1,338
164
1,447
2,949
7,279
238,045
185
3,134
17,602
1,044
256,691
22,228
0.45%
0.26%
2.36%
5.41%
0.22%
4.35%
1.04%
0.84%
1.75%
1.28%
2.54%
1.32%
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TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$ 278,919
Net Interest Income/Interest Rate Spread
Net Interest Margin
$ 8,265
3.03%
3.15%
NOTES:
(1) Balances reflect amortized historical cost for available-for-sale securities. The related average unrealized gain or loss on securities is
included in other nonearning assets.
(2) Balances of nonaccrual loans and related income recognized have been included for computational purposes. Includes net loan fee
income of $58,000.
f r o m s t r o n g r o o t s g r o w g r e a t c o m mUn i t i e s
Management strives to limit exposure to changes in interest rates through prudent structuring of interest-
bearing assets and liabilities. This is accomplished through the promotion of various loan and deposit products
and the purchase of certain investment securities or the structure of borrowings. Interest-rate risk is measured
on a quarterly basis and current measurement indicates exposure to rising interest rates. The Federal Reserve
has made no change to short-term interest rates in 2012. The lack of action has continued the decline in overall
market interest rates. The extended period of low rates has impacted the yield on Centric’s earning assets.
Offsetting some of this impact have been reductions to deposit rates and lower borrowing rates. In addition,
certain variable-rate loans have interest-rate floors and have not been fully impacted by these rate reductions.
Provision for Loan Losses
Centric’s provision for loan losses amounted to $1,353,000 for the year. The provision for loan losses is
an estimated expense to provide for losses attributable to uncollectible loans. The provision is based on
management’s analysis of the adequacy of the allowance for loan losses and is impacted by the level of net
charge-offs, loan growth, and estimated changes in credit risk on specifically identified loans and the overall loan
portfolio. The evaluation is subjective and involves significant estimates that are subject to change.
Other Operating Income
Other operating income consists primarily of service charges on deposit accounts, interchange income on debit
card transactions, servicing income on loans sold, fee income on mortgages sold on the secondary market, and
bank-owned life insurance. Servicing income is primarily related to earnings on residential mortgage loans
sold to the FHLB. The bank had previously sold loans to the FHLB as part of its Mortgage Partnership Finance
Program. The bank is no longer actively selling loans through this program. Future servicing revenue from these
loans will decrease as the outstanding balances of these loans continue to decline.
Other Operating Expenses
The most significant operating cost for Centric is salaries and wages and related employee benefit costs.
Included in these costs for 2012 are costs related to the hiring of additional lenders and support staff. Additional
lending staff was hired to concentrate on small business and mortgage lending that would be sold on the
secondary market.
Other operating costs also included $274,000 in advertising and marketing costs primarily focused on the bank’s
presence in our local market.
During 2012, total legal and professional fees amounted to $376,000. This included significant legal costs related
to loan collections. It is anticipated that these costs will decline in future years as the overall quality of our loan
portfolio continues to improve.
The overall results of operations for 2012 amounted to net income of $708,000. Please see the Consolidated
Statements of Operations and related notes for further details.
Regulatory Supervision
Centric Bank is subject to the regulatory supervision of the FDIC and the Pennsylvania Department of Banking.
16
c e n t r i c f i n a n c i a l c o r p o r a t i o n | 2 0 1 2 a n nU a l r e p o r t
CEN TRIC FINANCIAl CORPO RATIO N
IN DE PEND EN T AUDI TO R’S REPORT
TO THE BOARD OF DIRECTORS
CENTRIC FINANCIAL CORPORATION
HARRISBURG , PENNSy LvANIA
Report on the Consolidated Financial Statements
We have audited the accompanying consolidated financial statements of Centric Financial Corporation and subsidiary
which comprise the consolidated balance sheet as of December 31, 2012 and 2011; the related consolidated
statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for the years then
ended; and the related notes to the consolidated financial statements.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in
accordance with accounting principles generally accepted in the United States of America; this includes the design,
implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated
financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America.
Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or
error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and
fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal
control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting
policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating
the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Centric Financial Corporation and subsidiary as of December 31, 2012 and 2011, and the results
of their operations and their cash flows for the years then ended in accordance with accounting principles generally
accepted in the United States of America.
17
S.R. Snodgrass, A.C.
Wexford, Pennsylvania
March 1, 2013
f r o m s t r o n g r o o t s g r o w g r e a t c o m mUn i t i e s
CEN TRIC FINANCIAl CORPO RATIO N
CO NS OlIDAT ED BAl A NCE SHEET
(in thousands, except share data)
ASSETS
Cash and due from banks
Interest-bearing deposits in other banks
Federal funds sold
Cash and cash equivalents
Investment certificates of deposit
Securities available for sale
Securities held to maturity, fair value $951 and $896
Loans
Less: allowance for loan losses
Net loans
Loans held for sale
Accrued interest receivable
Premises and equipment, net
Regulatory stock
Cash surrender value life insurance
Goodwill
Other assets
TOTAL ASSETS
18
LIABILITIES AND STOCkHOLDERS’ EQUITy
LIABILITIES
Deposits:
Noninterest bearing
Interest bearing
Total deposits
Long-term debt
Accrued interest payable
Other liabilities
Total Liabilities
STOCkHOLDERS’ EQUITy
Preferred stock series C, $1.00 par; 7,492 shares issued and outstanding in
2012 and 2011 (liquidation preference $1,000 per share)
Common stock, $1.00 par; 12,000,000 shares authorized; 2,999,718 and
2,687,919 shares issued and outstanding in 2012 and 2011, respectively
Additional paid-in capital
Retained deficit
Accumulated other comprehensive income
Total Stockholders’ Equity
TOTAL LIABILITIES AND STOCkHOLDERS’ EQUITy
See notes to consolidated financial statements.
December 31,
2012
2011
$2,813
2,795
40,285
45,893
$ 4,589
1,834
25,913
32,336
9,831
26,661
929
5,394
25,023
931
208,509
2,918
205,591
179,942
2,482
177,460
1,059
597
6,362
1,060
1,387
492
2,197
$302,059
395
570
6,151
807
1,337
492
2,703
$253,599
$20,645
250,794
271,439
$15,830
207,757
223,587
6,763
98
1,206
279,506
9,442
126
498
233,653
7,492
7,492
2,999
14,904
(2,885)
43
22,553
$302,059
2,688
13,274
(3,518)
10
19,946
$253,599
c e n t r i c f i n a n c i a l c o r p o r a t i o n | 2 0 1 2 a n nU a l r e p o r t
CEN TRIC FINANCIAl CORPO RATIO N
CO NS OlIDAT ED STAT EMENT OF INC OM E
(in thousands, except share data)
INTEREST INCOME
Interest and fees on loans
Interest and dividends on securities
Interest-bearing deposits in other banks
Federal funds sold
Total interest income
INTEREST EXPENSE
Interest on deposits
Interest on long-term debt
Total interest expense
Net Interest Income
Provision for loan losses
Net interest income after provision for loan losses
NONINTEREST INCOME
Service charges on deposit accounts
Other loan fees and servicing income
Net gain on sale of loans
Net gain on sale of securities
Total other-than-temporary impairment (“OTTI”) losses
Non-credit portion of OTTI recognized in other comprehensive income
Net OTTI losses recognized in earnings
Other income
Total noninterest income
NONINTEREST EXPENSE
Salaries and employee benefits
Occupancy and equipment
Legal and professional fees
Data processing
Advertising and marketing
Shares and capital stock tax
Directors expense
Federal deposit insurance
Other expenses
Total noninterest expense
Income before income tax
Income tax expense (benefit)
NET INCOME
Preferred stock dividends and discount accretion
NET INCOME AvAILABLE TO COMMON SHAREHOLDERS
PER SHARE DATA
Basic earnings per share
Diluted earnings per share
Average shares outstanding (basic)
Average shares outstanding (diluted)
year Ended December 31,
2011
2012
$ 10,712
569
39
79
11,399
2,949
185
3,134
8,265
1,353
6,912
$ 9,518
664
43
45
10,270
2,874
246
3,120
7,150
1,098
6,052
99
223
251
145
(63)
(93)
(156)
207
769
88
134
90
-
(116)
54
(62)
228
478
3,098
916
376
429
274
154
148
233
1,044
6,672
1,009
301
708
(75)
$ 633
2,588
818
312
401
264
132
108
239
709
5,571
959
(446)
1,405
(351)
$ 1,054
$ 0.23
$ 0.23
2,741,791
2,760,885
$ 0.40
$ 0.39
2,658,251
2,674,975
19
See notes to consolidated financial statements.
f r o m s t r o n g r o o t s g r o w g r e a t c o m mUn i t i e s
CEN TRIC FINANCIAl CORPO RATIO N
CO NS OlIDAT ED STAT EMENT OF COM PREHENSIvE INCOME
(in thousands)
NET INCOME
December 31,
2012
$ 708
2011
$ 1,405
Other comprehensive income:
Unrealized holding gain (losses) on available-for-sale securities
Tax effect
Reclassification adjustment for gains recognized in income
Tax effect
Accretion of losses on securities transferred to held-to-maturity
Tax effect
Unrealized holding gains (losses) due to other-than-temporary impairment
on held-to-maturity securities
Tax effect
Other-than-temporary impairment losses recognized in earnings
Tax effect
(97)
34
(145)
49
43
(15)
93
(32)
156
(53)
271
(92)
-
-
34
(12)
(24)
8
62
(21)
20
Total other comprehensive income
COMPREHENSIvE INCOME
33
$ 741
226
$ 1,631
See notes to consolidated financial statements.
c e n t r i c f i n a n c i a l c o r p o r a t i o n | 2 0 1 2 a n nU a l r e p o r t
CEN TRIC FINANCIAl CORPO RATIO N
CO NS OlIDAT ED STAT EMENT OF CH ANgES IN STO CKHOlDER S
’ Eq UITY
(in thousands, except share data)
Preferred Preferred Preferred
Stock
Series C
Stock
Series A
Stock
Series B
Common
Stock
Additional
Paid-in
Capital
Accumulated
Other
Retained Comprehensive
Income (Loss)
Deficit
Total
Balance, December 31, 2010
$ 5,912
$ 182
$ -
$2,640
$ 12,975
$(4,572)
$ (216) $16,921
Net income
Other comprehensive income
Stock-based compensation plans:
Restricted stock - compensation expense
Stock options - compensation expense
Redemption of preferred stock
and related warrant (6,238 shares)
Issuance of preferred stock (7,492 shares)
Net accretion on preferred stock
Preferred stock dividend
Issuance of common stock (47,750 shares)
(6,056)
(182)
144
7,492
1,405
1,405
226
226
23
28
(144)
(207)
48
248
23
28
(6,238)
7,492
-
(207)
296
Balance, December 31, 2011
-
-
7,492
2,688
13,274
(3,518)
10
19,946
Net income
Other comprehensive income
Stock-based compensation plans:
Vesting of restricted stock (6,952 shares)
Restricted stock - compensation expense
Stock options - compensation expense
Preferred stock dividend
Issuance of common stock (304,847 shares)
708
33
708
33
21
6
(6)
30
24
305
1,582
(75)
-
30
24
(75)
1,887
Balance, December 31, 2012
$ -
$ -
$ 7,492
$2,999
$ 14,904
$(2,885)
$ 43 $22,553
See notes to consolidated financial statements.
f r o m s t r o n g r o o t s g r o w g r e a t c o m mUn i t i e s
CEN TRIC FINANCIAl CORPO RATIO N
CO NS OlIDAT ED STAT EMENT OF CASH Fl OwS
(in thousands)
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses
Depreciation and amortization
Stock-based compensation
Deferred income tax benefit
Loans originated for sale
Proceeds from sale of loans
Net gain on sale of loans
22
Increase in accrued interest receivable
Decrease in accrued interest payable
Net gain on sale of securities
Security impairment losses realized in earnings
Decrease in prepaid federal depository insurance
Net (gain) loss on sale of assets
Other, net
Net cash provided by operating activities
Cash flows from investing activities
Net (increase) decrease in certificates of deposit
Sales of available-for-sale securities
Maturities and principal pay downs of available-for-sale securities
Maturities and principal pay downs of held-to-maturity securities
Purchases of available-for-sale securities
Purchases of regulatory stock
Redemption of regulatory stock
Net increase in loans
Purchases of bank premises and equipment
Proceeds from disposal of other real estate owned
Purchase of bank-owned life insurance
Proceeds from disposal of bank premises and equipment
Net cash used by investing activities
Cash flows from financing activities
Net increase in deposits
Proceeds from long-term debt
Payments on long-term debt
Dividends paid - preferred stock
Net proceeds from issuance of common stock
Net proceeds from issuance of preferred stock
Net payments from redemption of preferred stock
Net cash provided by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest
Income taxes
Supplemental schedule of noncash investing and financing activities:
Other real estate acquired in settlement of loans
Securities purchased not settled
See notes to consolidated financial statements.
year Ended December 31,
2011
2012
$ 708
$ 1,405
1,353
520
54
113
(14,544)
14,130
(251)
(27)
(28)
(145)
156
216
75
528
2,858
(4,437)
2,369
13,101
139
(16,863)
(526)
273
(29,926)
(957)
249
-
273
(36,305)
47,852
-
(2,679)
(56)
1,887
-
-
47,004
13,557
32,336
$ 45,893
1,098
471
51
(494)
(7,426)
7,391
(90)
(95)
(27)
-
62
225
(36)
(133)
2,402
3,431
-
10,535
130
(12,967)
(326)
25
(33,100)
(2,303)
492
(1,300)
17
(35,366)
49,115
4,812
(4,000)
(187)
296
7,492
(6,238)
51,290
18,326
14,010
$ 32,336
$ 3,162
175
$ 3,147
60
468
514
650
-
c e n t r i c f i n a n c i a l c o r p o r a t i o n | 2 0 1 2 a n nU a l r e p o r t
CEN TRIC FINANCIAl CORPO RATIO N
N OT E S TO CO NSOlI DAT ED FI NAN CIAl STAT EM EN TS
Note 1 | Significant Accounting Policies
Organization and Nature of Operations
Centric Financial Corporation (“Centric”) or (“the Company”) is a financial holding company which includes its
wholly-owned subsidiary, Centric Bank (“the Bank”).
The Bank entails virtually all of Centric’s ongoing operations. The Bank offers customers a range of deposit, loan,
and other services typical of community banks through three offices in south central Pennsylvania and online
banking channels. The Bank’s principal source of revenue emanates from interest income from its portfolio
of commercial and residential real estate loans, commercial loans, and consumer loans, as well as from its
investment portfolio.
Centric is subject to regulation and supervision of the Pennsylvania Department of Banking and the FDIC.
Basis of Presentation
The financial statements have been prepared in accordance with accounting principles generally accepted in
the United States of America. The accounts of Centric and the Bank are consolidated with the elimination of all
intercompany transactions and balances.
Estimates
Management is required to make estimates and assumptions that affect the reported amounts of assets
and liabilities, income and expense, and the nature and extent of disclosures. Ultimate results could differ
significantly from those estimates and assumptions. Centric’s material estimates that are particularly susceptible
to significant change in the near term relate to the valuation of loans, the allowances for loan and other credit
losses, and other-than-temporary impairment evaluations of securities, evaluation of goodwill impairment,
deferred tax valuation, and fair value of financial instruments.
23
In the ordinary course of business, Centric and the Bank are parties to legal proceedings that entail uncertainty.
In management’s opinion, Centric’s financial position and results of operations would not be materially impacted
by the outcome of such proceedings individually or in the aggregate.
Cash and Cash Equivalents
Cash and cash equivalents with original maturities of 90 days or less include cash, balances due from banks,
interest-bearing demand deposits in other banks, and federal funds sold. Federal funds sold are generally for
one-day periods. The Bank has been required to maintain average balances with the Federal Reserve Bank. In
2012, the Bank engaged in a deposit reclassification program that evaluates the unused balance of transaction
accounts. The unused portion is then reclassified as a non-transaction account. This allows the Bank to reclaim
the balances held at the Federal Reserve for investment or operating use. The Federal Reserve of Philadelphia
approved the use of this program for Centric Bank in the second quarter of 2012. The required minimum balance
was $0 at December 31, 2012, and $2,929,000 at December 31, 2011.
Credit Risk Concentrations
As a community bank, most of the Bank’s loans and credit commitments comprise Pennsylvania customers,
primarily individuals and entities situated in Dauphin and Cumberland counties.
Securities
Investment securities are classified when purchased as either “securities available for sale” or “securities held to
maturity.”
Securities classified as “available for sale” are those debt securities that the Bank intends to hold for an indefinite
period of time but not necessarily to maturity, and are carried at fair value. Unrealized gains or losses are
included in other comprehensive income, net of the related deferred tax effect. Realized gains and losses on
f r o m s t r o n g r o o t s g r o w g r e a t c o m mUn i t i e s
CEN TRIC FINANCIAl CORPO RATIO N
Note 1 | Significant Accounting Policies (continued)
disposition of securities are recognized as noninterest income measured on specific identification of the simple
difference between net proceeds and adjusted book value. Premiums and discounts are recognized in interest
income using the interest method over the terms of the securities.
Securities classified as “held to maturity” are those debt securities the Bank has both the intent and ability to
hold to maturity regardless of changes in market conditions, liquidity needs, or changes in general economic
conditions. These securities are carried at cost adjusted for the amortization of premium and accretion of
discount, computed by the interest method over the terms of the securities.
Securities are periodically reviewed for other-than-temporary impairment based upon a number of factors,
including, but not limited to, the length of time and extent to which market value has been less than cost,
the financial condition of the underlying issuer, the ability of the issuer to meet contractual obligations, the
likelihood of the security’s ability to recover any decline in its market value, and whether or not management
intends to sell the security or whether it is more likely than not that they would be required to sell the security
before its anticipated recovery in market value, to determine whether the loss in value is other-than-temporary.
A decline in value that is considered to be other-than-temporary is recorded as a loss within noninterest income
in the Consolidated Statement of Income.
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff
are stated at their outstanding unpaid principal balances, net of any allowance for loan losses and any deferred
fees or costs. Interest income is accrued on the unpaid principal balance.
24
Lease contracts are classified as direct finance leases. Lessees guarantee 100 percent of the leases’ residual value
at the conclusion of the lease term.
Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the
yield (interest income) of the related loans. The Bank is generally amortizing these amounts over the contractual
life of the loan.
The accrual of interest is discontinued when the contractual payment of principal or interest has become 90 days
past due or management has serious doubts about further collectibility of principal or interest, even though the
loan is currently performing. A loan may remain on accrual status if it is in the process of collection and is either
guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid interest credited to income in
the current year is reversed and unpaid interest accrued in prior years is charged against the allowance for loan
losses. Interest received on nonaccrual loans generally is either applied against principal or reported as interest
income, according to management’s judgment as to the collectability of principal. Generally, loans are restored
to accrual status when the obligation is brought current, has performed in accordance with the contractual
terms for a reasonable period of time and the ultimate collectability of the total contractual principal and
interest is no longer in doubt.
Allowance for Loan Losses
The allowance for loan losses is established through provisions for loan losses charged against income as losses
are estimated to have occurred. Loans deemed to be uncollectible are charged against the allowance for loan
losses, and subsequent recoveries, if any, are credited to the allowance.
The allowance for loan losses is maintained at a level considered adequate to provide for losses that can be
reasonably anticipated. Management’s periodic evaluation of the adequacy of the allowance is based on
known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the
estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions,
and other relevant factors. This evaluation is inherently subjective, since it requires material estimates that may
be susceptible to significant change.
c e n t r i c f i n a n c i a l c o r p o r a t i o n | 2 0 1 2 a n nU a l r e p o r t
CEN TRIC FINANCIAl CORPO RATIO N
Note 1 | Significant Accounting Policies (continued)
The allowance consists of specific and general components. The specific component relates to loans that are
classified as Doubtful, Substandard, or Special Mention. For such loans that are also classified as impaired, an
allowance is established when the discounted cash flows (or collateral value or observable market price) of
the impaired loan is lower than the carrying value of that loan. The general component covers non-classified
loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component is
maintained to cover uncertainties that could affect management’s estimate of probable losses.
A loan is considered impaired when, based on current information and events, it is probable that the Bank will be
unable to collect the scheduled payments of principal or interest when due according to the contractual terms
of the loan agreement. Factors considered by management in determining impairment include payment status,
collateral value and the probability of collecting scheduled principal and interest payments when due. Loans
that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.
Management determines the significance of payment delays and payment shortfalls on a case-by-case basis,
taking into consideration all of the circumstances surrounding the loan and the borrower, including the length
of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in
relation to the principal and interest owed. Impairment is measured on a loan-by-loan basis for commercial and
construction loans by either the present value of expected future cash flows discounted at the loan’s effective
interest rate or the fair value of the collateral if the loan is collateral-dependent.
Purchased loans with evidence of credit quality deterioration for which it is probable at purchase that all
contractually required payments will not be collected are acquired with deteriorated credit quality. Centric
accounts for differences between contractual cash flows and cash flows expected to be collected from an
investor’s initial investment in loans acquired in a transfer if those differences are attributable, at least in part,
to credit quality. Centric records impaired loans at fair value and did not carry over valuation allowances in the
initial accounting for loans acquired in a transfer, including loans acquired in a purchase business combination.
The excess of cash flows expected at purchase over the purchase price is recognized as interest income over
the life of the loans. Subsequent increases in cash flows expected to be collected are recognized prospectively
through an adjustment of the loan’s yield over its remaining life. Decreases in expected cash flows are
recognized as impairments.
Unfunded Credit Commitments
In the ordinary course of business, the Bank enters into commitments to extend credit and letters of credit. Such
financial instruments are recorded when funded. A reserve for unfunded lending commitments under contract,
lines and letter of credit, is included in other liabilities.
Restricted Investments in Bank Stocks
Under membership agreement, the Bank is required to own stock issued by Atlantic Central Bankers Bank.
Because ownership and disposition is restricted, the shares lack a market for measuring fair value and are
recorded at cost.
The Bank is also a member of the Federal Home Loan Bank of Pittsburgh (“FHLB”) and as such is required to
maintain a minimum investment in stock of the FHLB, which varies with the level of advances outstanding with
the FHLB. The stock is bought from and sold to the FHLB based upon its $100 par value. The stock does not
have a readily determinable fair value and as such is classified as restricted stock, carried at cost and evaluated
by management. The stock’s value is determined by the ultimate recoverability of the par value rather than
by recognizing temporary declines. The determination of whether the par value will ultimately be recovered
is influenced by criteria such as the following: (a) the significance of the decline in net assets of the FHLB as
compared to the capital stock amount and the length of time this situation has persisted; (b) commitments by
the FHLB to make payments required by law or regulation and the level of such payments in relation to the
25
f r o m s t r o n g r o o t s g r o w g r e a t c o m mUn i t i e s
CEN TRIC FINANCIAl CORPO RATIO N
Note 1 | Significant Accounting Policies (continued)
operating performance; (c) the impact of legislative and regulatory changes on the customer base of the FHLB;
and (d) the liquidity position of the FHLB. Management evaluated the stock and concluded that the stock was
not impaired for the periods presented herein.
Goodwill
Goodwill represents the amount paid to acquire the Bank beyond the fair value of the identifiable net assets
acquired. Goodwill is not amortized but rather is tested for impairment at least annually. For federal tax
purposes, goodwill is amortized on a straight-line basis over 15 years. There was no impairment of goodwill for
2012 and 2011.
Core Deposit Intangibles
Core deposit intangibles represent the asset identified for depositor relationships acquired with the Bank. This
asset was valued at acquisition based upon the economic advantages of core deposits as a funding source.
This acquired asset is being amortized using an accelerated method with an estimated useful life of ten years;
$10,000 and $12,000 of amortization expense was recognized in 2012 and 2011, respectively. The unamortized
balance was $21,000 and $31,000 at December 31, 2012 and 2011, respectively. Amortization expense will be
$8,000, $6,000, $5,000, and $2,000 for years 2013, 2014, 2015, and 2016, respectively.
Mortgage Servicing Rights and Related Credit Enhancement Fees
Some years prior to being acquired by Centric, the Bank sold residential mortgages to FHLB under the Mortgage
Partnership Finance Program (“MPF”). The Bank is no longer an active participant in the MPF program. Under
this program, the Bank services the portfolio sold to the FHLB and receives corresponding fees. The MPF
program also entails a credit enhancement arrangement whereby the Bank receives a fee for retaining a residual
contingent liability for the repayment of loans sold to the FHLB.
When Centric purchased the Bank, assets for mortgage servicing rights and related credit enhancement fees
were recorded at fair value corresponding to net cash flows expected for servicing and credit enhancement
of the MPF portfolio. Mortgage servicing rights are $25,000 and $41,000 at December 31, 2012 and 2011,
respectively. These assets are amortized based upon portfolio activity and subject to ongoing evaluation for any
permanent impairment.
MPF portfolio fees earned amounted to $39,000 and $53,000 for 2012 and 2011, respectively. The MPF
portfolio balance was $8,565,000 and $12,092,000 at December 31, 2012 and 2011, respectively. The FHLB
maintains a first-loss position for the MPF portfolio that totals $294,000. Should the FHLB exhaust its first-loss
position, recourse to the Bank’s credit enhancement would be up to the next $113,000 of losses. The Bank has
not experienced any losses for the MPF portfolio. The value of credit enhancement fees receivable, net of an
estimated liability, was $15,000 and $25,000 at December 31, 2012 and 2011, respectively.
Transfers of Financial Assets
The Bank sells interests in loans receivable through loan participation sales. The Bank accounts for these
transactions as sales, when control over the assets has been surrendered. Control over transferred assets is
deemed to be surrendered when (1) the assets have been isolated from the Bank, (2) the transferee obtains
the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the
transferred assets, and (3) the Bank does not maintain effective control over the transferred assets through an
agreement to repurchase them before their maturity.
The Bank retains servicing responsibilities for the loan participation sales. The Bank does not recognize a
servicing asset or liability, since the amount received for servicing the loan participations is a reasonable
approximation of market rates and servicing costs.
26
c e n t r i c f i n a n c i a l c o r p o r a t i o n | 2 0 1 2 a n nU a l r e p o r t
CEN TRIC FINANCIAl CORPO RATIO N
Note 1 | Significant Accounting Policies (continued)
Advertising Costs
The Bank charges advertising costs to expense as accrued.
Earnings Per Share
Basic earnings per share represents income available to common stockholders divided by the weighted-average
number of shares outstanding during the period. Diluted earnings per share reflects additional common
shares that would have been outstanding if dilutive potential common shares had been issued, as well as any
adjustment to income that would result from the assumed issuance. Potential common shares that may be
issued by Centric relate to outstanding stock options and warrants and non-vested restricted stock.
Anti-dilutive options and warrants to purchase 24,674 and 25,054 shares of common stock, at a weighted-
average price of $5.89 and $5.62 outstanding at December 31, 2012 and 2011, respectively; and unvested
restricted shares of 2,750 and 3,693 at a price of $5.92 and $5.53 at December 31, 2012 and 2011, respectively,
were not included in dilutive earnings per share.
(in thousands, except per share data)
Net income
Preferred stock dividends
Net income available to common shareholders
Weighted-average number of shares outstanding (basic)
Effect of dilutive securities
Weighted-average number of shares outstanding (diluted)
Per share information:
Basic earnings per share
Diluted earnings per share
2012
$ 708
(75)
$ 633
2011
$ 1,405
(351)
$ 1,054
2,741,791
19,094
2,760,885
2,658,251
16,724
2,674,975
$ 0.23
$ 0.23
$ 0.40
$ 0.39
27
Stock-Based Compensation
Centric records the cash flow from the tax benefits resulting from tax deductions in excess of the compensation
cost recognized for stock-based awards (excess tax benefit) be classified as financing cash flows. During 2012
and 2011, no stock options were exercised.
Accumulated Other Comprehensive Income or Loss
Centric recognizes revenue, expenses, gains, and losses in net income. Certain changes in assets and liabilities,
such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of
the equity section of the Consolidated Balance Sheet. Such items are included as components of accumulated
comprehensive income as of December 31, 2012 and 2011, as follows:
(in thousands)
Net unrealized gains on securities available-for-sale
Unaccreted losses on securities transferred into held-to-maturity
Unaccreted non-credit portion of OTTI
Total accumulated other comprehensive income before taxes
Tax effect
Total accumulated other comprehensive income
2012
$ 191
(23)
(103)
65
(22)
$ 43
2011
$ 433
(66)
(352)
15
(5)
$ 10
f r o m s t r o n g r o o t s g r o w g r e a t c o m mUn i t i e s
CEN TRIC FINANCIAl CORPO RATIO N
Note 2 | Investment Securities
The Consolidated Balance Sheet presents “available-for-sale” securities at fair value. Corresponding unrealized gains and
losses do not affect net income but are recorded in accumulated other comprehensive income, net of related deferred
income taxes.
A summary of securities available for sale is as follows:
(in thousands)
U.S. government agency securities
Municipal securities
Mortgage-backed securities:
Government sponsored or guaranteed
Total
(in thousands)
December 31, 2012
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Amortized
Cost
Fair
value
$ 10,299
1,977
$ 15
8
$ (42)
(5)
$ 10,272
1,980
14,194
$ 26,470
225
$ 248
(10)
$ (57)
14,409
$ 26,661
December 31, 2011
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Amortized
Cost
Fair
value
U.S. government agency securities
Municipal securities
Mortgage-backed securities:
Government sponsored or guaranteed
Privately issued residential
Total
28
$ 8,999
304
$ 28
1
$ - $ 9,027
305
-
15,210
77
$ 24,590
410
1
$ 440
(7) 15,613
78
$ (7) $ 25,023
-
A summary of securities held to maturity is as follows:
(in thousands)
Mortgage-backed securities:
Privately issued residential
(in thousands)
Mortgage-backed securities:
Privately issued residential
December 31, 2012
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Amortized
Cost
Fair
value
$ 928
$ 23
$ -
$ 951
December 31, 2011
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Amortized
Cost
Fair
value
$ 931 $ 8
$ (43) $ 896
Securities with a fair value of $24,147,000 and $20,221,000 were pledged to collateralize bank deposits by Pennsylvania local
governments, FHLB advances, and the discount window as of December 31, 2012 and 2011, respectively.
c e n t r i c f i n a n c i a l c o r p o r a t i o n | 2 0 1 2 a n nU a l r e p o r t
CEN TRIC FINANCIAl CORPO RATIO N
Note 2 | Investment Securities (continued)
The amortized cost and fair value of debt securities owned at December 31, 2012, by contractual maturity, are shown below:
(in thousands)
Available for Sale
Held to Maturity
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Total investment securities
Amortized
Cost
$ -
1,000
10,193
15,277
$ 26,470
Fair
value
$ -
1,008
10,170
15,483
$ 26,661
Amortized
Cost
$ -
-
-
928
$ 928
Fair
value
$ -
-
-
951
$ 951
A summary of securities available for sale which were in an unrealized loss position is as follows:
(in thousands)
U.S. government agency securities
Municipal securities
Mortgage-backed securities:
Government sponsored or guaranteed
Total temporarily impaired securities
(in thousands)
Less than 12 Months
Unrealized
Fair
Losses
value
$ (42)
$ 6,758
(5)
1,235
December 31, 2012
12 Months or Greater
Unrealized
Losses
$ -
-
Fair
value
$ -
-
Total
Fair
value
$ 6,758
1,235
Unrealized
Losses
$ (42)
(5)
3,222
$ 11,215
(10)
$ (57)
-
$ -
-
$ -
3,222
$ 11,215
(10)
$ (57)
Less than 12 Months
Unrealized
Fair
Losses
value
December 31, 2011
12 Months or Greater
Unrealized
Losses
Fair
value
Total
Fair
value
Unrealized
Losses
29
Mortgage-backed securities:
Government sponsored or guaranteed
Privately issued residential
Total temporarily impaired securities
$ 863
850
$ 1,713
$ (7)
(43)
$ (50)
$ -
-
$ -
$ -
-
$ -
$ 863
850
$ 1,713
$ (7)
(43)
$ (50)
Securities are evaluated on an ongoing basis to determine whether a decline in their value is other than temporary. For debt securities,
management considers whether the present value of cash flows expected to be collected is less than the security’s amortized cost basis (the
difference defined as the credit loss), the magnitude and duration of the decline, the reasons underlying the decline and management’s
intent to sell the security or whether it is more likely than not that they would be required to sell the security before its anticipated recovery
in market value, to determine whether the loss in value is other than temporary. Once a decline in value is determined to be other than
temporary, if the investor does not intend to sell the security, and it is more likely than not that it will not be required to sell the security,
before recovery of the security’s amortized cost basis, the charge to earnings is limited to the amount of credit loss. Any remaining difference
between fair value and amortized cost (the difference defined as the non-credit portion) is recognized in other comprehensive income, net
of applicable taxes. Otherwise, the entire difference between fair value and amortized cost is charged to earnings.
Centric reviews investment securities on an ongoing basis for potential impairment which would be other than temporary and has adopted
the provision which provides for the bifurcation of other-than-temporary impairment (“OTTI”) into two categories: (a) the amount of the
total OTTI related to a decrease in expected cash flows to be collected (credit loss) which is recognized through earnings; and (b) the amount
of OTTI related to all other factors, which is recognized, net of income taxes, as a component of other comprehensive income. Centric
recorded credit-related impairment of $156,000 on three private label mortgage-backed securities through earnings as of December 31,
2012, and $62,000 on one private label mortgage-backed security for the year ended December 31, 2011. There were 24 securities that were
temporarily impaired at December 31, 2012.
f r o m s t r o n g r o o t s g r o w g r e a t c o m mUn i t i e s
CEN TRIC FINANCIAl CORPO RATIO N
Changes in credit losses during 2012 and 2011 associated with investment securities for which other-than-temporary impairment losses
have been previously recognized in both earnings and other comprehensive income follow:
(in thousands)
Estimated credit losses - beginning balance
Additions for credit losses not previously recognized
Reductions for increases in cash flows
Reductions for realized losses
Estimated credit losses - ending balance
December 31
2012
$ 363
156
-
(128)
$ 391
2011
$ 301
62
-
-
$ 363
During the year ended December 31, 2012, the Bank sold five securities totaling $2,258,000 for a gain of $145,000. There were no sales or
proceeds from sales of securities in 2011.
Note 3 | Loans
The composition of loans, net of unamortized loan origination fees of $131,000 and $86,000, at December 31, 2012 and 2011, is as follows:
(in thousands)
Commercial
Real estate:
Commercial non-owner occupied/investment
Commercial all other
Residential
Home equity lines of credit
Consumer
Total loans
Allowance for loan losses
Net loans
Note 4 | Allowance for Loan Losses
30
December 31
2012
$ 34,698
2011
$ 28,903
74,936
70,342
14,269
13,530
734
208,509
(2,918)
$ 205,591
67,804
55,792
14,690
12,096
657
179,942
(2,482)
$ 177,460
Management has an established methodology to determine the adequacy of the allowance for loan losses that assesses the risks and losses
inherent in the loan portfolio. For purposes of determining the allowance for loan losses, the Bank has grouped certain loans in the portfolio
into the following segments: commercial non-owner occupied and investment real estate loans; commercial all other real estate loans;
residential real estate loans; home equity lines of credit; consumer loans; and unallocated. Historical loss percentages for each risk category
are calculated and used as the basis for calculating allowance allocations. These historical loss percentages are calculated over a three-year
period for all portfolio segments. Certain qualitative factors are then added to the historical allocation percentage to get the adjusted factor
to be applied to non-classified loans. The following qualitative factors are analyzed for each portfolio segment:
n Levels of and trends in delinquencies and nonaccruals
n Trends in volume and terms
n Changes in lending policies and procedures
n Volatility of losses within each risk category
n Economic trends
n Concentrations of credit
n Experience depth and ability of management
Due to the amount of available history the Bank has migrated from using peer loss statistics to actual experience as a component of the
qualitative factors. Each segment is reviewed at least quarterly and adjusted based on the following qualitative factors: economic conditions,
volume, trends in delinquencies, nonperforming and classified loans, collateral value, personnel, and policy and procedures.
c e n t r i c f i n a n c i a l c o r p o r a t i o n | 2 0 1 2 a n nU a l r e p o r t
CEN TRIC FINANCIAl CORPO RATIO N
Note 4 | Allowance for Loan Losses (continued)
The total allowance reflects management’s estimate of loan losses inherent in the loan portfolio at the balance
sheet date. The Bank considers the allowance for loan losses of approximately $2,918,000 adequate to cover
loan losses inherent in the loan portfolio, as of and for the year ending December 31, 2012. The following table
presents, by portfolio segment, the activity within the allowance for loan losses and the ending balance of the
allowance for loan losses for 2012:
(in thousands)
Commercial
Real estate:
Commercial non-owner occupied / investment
Commercial all other
Residential
Home equity lines of credit
Consumer
Unallocated
Total
Balance at
December 31,
2011
$ 448
Charged-off
Loans
$ (203)
886
609
148
132
104
155
$ 2,482
(675)
(15)
-
-
(34)
-
$ (927)
Recoveries
$ 8
Provision
$ 48
-
-
-
-
2
-
$ 10
991
418
(2)
2
(4)
(100)
$ 1,353
Allowance for loan losses activity during 2011 is as follows:
(in thousands)
Commercial
Real estate:
Commercial non-owner occupied / investment
Commercial all other
Residential
Home equity lines of credit
Consumer
Unallocated
Total
Balance at
December 31,
2010
$ 330
415
537
105
-
170
255
$ 1.812
Charged-off
Loans
$ (73)
(304)
(57)
-
-
(18)
-
$ (452)
Recoveries
$ 8
Provision
$ 183
-
15
1
-
-
-
$ 24
775
114
(42)
132
(48)
(100)
$ 1,098
Balance at
December 31,
2012
$ 301
1,202
1,012
146
134
68
55
$ 2,918
Balance at
December 31,
2011
$ 448
886
609
148
132
104
155
$ 2,482
The following tables present, by portfolio segment, the recorded investment in those loans for 2012 and 2011:
31
(in thousands)
Allowance for loan losses:
Commercial
Real estate:
Commercial non-owner occupied / investment
Commercial all other
Residential
Home equity lines of credit
Consumer
Unallocated
Total
Loans, ending balance:
Commercial
Real estate:
Commercial non-owner occupied / investment
Commercial all other
Residential
Home equity lines of credit
Consumer
Total
Individually
Evaluated for
Impairment
December 31, 2012
Collectively
Evaluated for
Impairment
Total
$ -
$ 301
$ 301
150
300
-
-
-
-
$ 450
1,052
712
146
134
68
55
$ 2,468
1,202
1,012
146
134
68
55
$ 2,918
$ 1,116
$ 33,582
$ 34,698
1,920
1,087
-
-
-
$ 4,123
73,016
69,255
14,269
13,530
734
$ 204,386
74,936
70,342
14,269
13,530
734
$ 208,509
f r o m s t r o n g r o o t s g r o w g r e a t c o m mUn i t i e s
CEN TRIC FINANCIAl CORPO RATIO N
Note 4 | Allowance for Loan Losses (continued)
(in thousands)
Allowance for loan losses:
Commercial
Real estate:
Commercial non-owner occupied / investment
Commercial all other
Residential
Home equity lines of credit
Consumer
Unallocated
Total
Loans, ending balance:
Commercial
Real estate:
Commercial non-owner occupied / investment
Commercial all other
Residential
Home equity lines of credit
Consumer
Total
Individually
Evaluated for
Impairment
December 31, 2011
Collectively
Evaluated for
Impairment
Total
$ 168
$ 280
$ 448
-
-
-
-
-
-
$ 168
886
609
148
132
104
155
$ 2,314
886
609
148
132
104
155
$ 2,482
$ 1,082
$ 27,821
$ 28,903
1,160
453
-
-
-
$ 2,695
66,644
55,339
14,690
12,096
657
$ 177,247
67,804
55,792
14,690
12,096
657
$ 179,942
32
Credit Quality and Aging
The following tables represent credit exposures by internally assigned grades for 2012 and 2011. The grading
analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements
as scheduled or at all. The Bank’s internal credit risk grading system is based on experiences with similarly
graded loans. The Bank also sub-segments the commercial real estate segment into the following two classes:
commercial real estate non-owner occupied and investment and commercial real estate all other.
The Bank’s internally assigned grades are as follows:
n Pass – loans which are protected by the current net worth and paying capacity of the obligor or by the value
of the underlying collateral.
n Special Mention – loans where a potential weakness or risk exists, which could cause a more serious problem
if not corrected.
n Substandard – loans that have a well-defined weakness based on objective evidence and are characterized by
the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
n Doubtful – loans classified as “Doubtful” have all the weaknesses inherent in a Substandard asset. In addition,
these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing
circumstances.
n Loss – loans classified as a loss are considered uncollectible, or of such value that continuance as an asset is
not warranted.
c e n t r i c f i n a n c i a l c o r p o r a t i o n | 2 0 1 2 a n nU a l r e p o r t
CEN TRIC FINANCIAl CORPO RATIO N
Note 4 | Allowance for Loan Losses (continued)
(in thousands)
Pass
Special mention
Substandard
Doubtful
Loss
Total
(in thousands)
Pass
Special mention
Substandard
Doubtful
Loss
Total
Commercial
$ 31,892
1,681
1,125
-
-
$ 34,698
Commercial
$ 25,951
1,869
1,083
-
-
$ 28,903
December 31, 2012
Commercial Real
Estate Non-Owner
$ 71,068
87
3,781
-
-
$ 74,936
Commercial Real
Estate All Other
$ 69,178
52
1,112
-
-
$ 70,342
December 31, 2011
Commercial Real
Estate Non-Owner
$ 66,823
87
894
-
-
$ 67,804
Commercial Real
Estate All Other
$ 55,015
63
714
-
-
$ 55,792
Payment activity for the noncommercial portfolio is reviewed by management on a monthly basis to determine
how loans are performing. Loans are considered nonperforming when they become 90 days past due or the
Bank is in possession of other information that would deem the loan nonperforming. The following tables
present performing and nonperforming residential real estate, home equity lines of credit, and consumer loan
classes based on payment activity as of December 31:
33
(in thousands)
Performing
Nonperforming
(in thousands)
Performing
Nonperforming
Residential
Real Estate
$ 14,070
199
$ 14,269
Residential
Real Estate
$ 14,571
119
$ 14,690
December 31, 2012
Home Equity Lines
of Credit
$ 13,530
-
$ 13,530
December 31, 2011
Home Equity Lines
of Credit
$ 12,096
-
$ 12,096
Consumer
$ 703
31
$ 734
Consumer
$ 585
72
$ 657
Past Due and Nonaccrual Loans
Loans are considered nonaccrual upon reaching 90 days of delinquency, although the Bank may be receiving
partial payments of interest and partial repayments of principal on such loans. When a loan is placed in
nonaccrual status, previously accrued but unpaid interest is deducted from interest income.
The following table presents performing and nonperforming loans and aging analysis of the recorded
investment of past-due financing receivables, broken by segment and sub-segment, based on payment activity
for the year ended December 31, 2012 and 2011. Payment activity is reviewed by management on a monthly
basis to determine how loans are performing. Loans are considered to be nonperforming when they become
90 days past due.
f r o m s t r o n g r o o t s g r o w g r e a t c o m mUn i t i e s
CEN TRIC FINANCIAl CORPO RATIO N
Note 4 | Allowance for Loan Losses (continued)
There were no loans 90 days past due and still accruing during 2012 or 2011.
(in thousands)
December 31, 2012
Commercial
Real estate:
Commercial non-owner
occupied/investment
Commercial all other
Residential
Home equity lines of credit
Consumer
Total
30-89 Days
Past Due
$ -
90+ Days
Past Due
$ 918
Total
Past Due
Current
Total
Loans
Non-accrual
$ 918
$ 33,780
$ 34,698
$ 1,071
286
188
1,306
-
-
1,951
754
111
-
31
2,237
942
1,417
-
31
72,699
69,400
12,852
13,530
703
74,936
70,342
14,269
13,530
734
$ 1,780
$ 3,765
$ 5,545
$202,964
$208,509
1,983
754
199
-
31
$ 4,038
(in thousands)
December 31, 2011
34
Commercial
Real estate:
Commercial non-owner
occupied/investment
Commercial all other
Residential
Home equity lines of credit
Consumer
Total
30-89 Days
Past Due
$ 83
90+ Days
Past Due
$ 894
Total
Past Due
Current
Total
Loans
Non-accrual
$ 977
$ 27,926
$ 28,903
$ 894
372
293
194
-
-
875
224
119
-
72
1,247
517
313
-
72
66,557
55,275
14,377
12,096
585
67,804
55,792
14,690
12,096
657
$ 942
$ 2,184
$ 3,126
$176,816
$179,942
875
224
119
-
72
$ 2,184
Impaired Loans
Management analyzes loans which are 90 days or more past due for impairment to determine if it is probable
that all amounts will not be collected according to the contractual terms of the loan agreement. If management
determines that the value of the impaired loan is less than the recorded investment in the loan (net of previous
charge-offs, deferred loan fees or costs, and unamortized premium or discount), impairment is recognized
through an allowance estimate or a charge-off to the allowance.
Loans acquired with deteriorated credit quality had outstanding contractual balances of $152,000 and $244,000
and carrying amounts of $97,000 and $134,000 as of December 31, 2012 and 2011, respectively.
c e n t r i c f i n a n c i a l c o r p o r a t i o n | 2 0 1 2 a n nU a l r e p o r t
CEN TRIC FINANCIAl CORPO RATIO N
Note 4 | Allowance for Loan Losses (continued)
The following tables include the recorded investment and unpaid principal balances for impaired financing
receivables with the associated allowance amount, if applicable, as of and for the years ended December 31,
2012 and 2011.
(in thousands)
December 31, 2012
With no related allowance recorded:
Commercial
Real estate:
Commercial non-owner
occupied/investment
Commercial all other
Residential
Home equity lines of credit
Consumer
With an allowance recorded:
Commercial
Real estate:
Commercial non-owner
occupied/investment
Commercial all other
Residential
Home equity lines of credit
Consumer
Total
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
$ 1,116
$ 1,438
$ -
$ 1,074
$ 33
1,626
335
-
-
-
1,682
335
-
-
-
-
-
-
-
-
1,100
344
-
-
-
26
21
-
-
-
-
-
-
-
-
294
752
-
-
-
$ 4,123
294
752
-
-
-
$ 4,501
150
300
-
-
-
$ 450
176
449
-
-
-
$ 3,143
-
17
-
-
-
$ 97
35
(in thousands)
December 31, 2011
With no related allowance recorded:
Commercial
Real estate:
Commercial non-owner
occupied/investment
Commercial all other
Residential
Home equity lines of credit
Consumer
With an allowance recorded:
Commercial
Real estate:
Commercial non-owner
occupied/investment
Commercial all other
Residential
Home equity lines of credit
Consumer
Total
Recorded
Investment
Unpaid
Principal
Balance
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
$ 312
$ 459
$ -
$ 297
$ 19
1,160
453
-
-
-
1,355
454
15
-
-
-
-
-
-
-
745
181
2
-
-
22
29
-
-
-
770
853
168
835
3
-
-
-
-
-
$ 2,695
-
-
-
-
-
$ 3,136
-
-
-
-
-
$ 168
-
-
-
-
-
$ 2,060
-
-
-
-
-
$ 73
f r o m s t r o n g r o o t s g r o w g r e a t c o m mUn i t i e s
CEN TRIC FINANCIAl CORPO RATIO N
Note 4 | Allowance for Loan Losses (continued)
Loan Modifications
Situations may arise that would cause the Bank to grant a concession for other-than-temporary purpose
to the borrower that the Bank would not otherwise consider. The loan receiving the concession would
then be classified as a Trouble Debt Restructure (“TDR”). The situations leading to the concession may be
economic or legal in nature and affect the borrower’s ability to meet the contractual obligation to the Bank.
Management actively attempts to identify borrowers having financial difficulty early, and work with them to
modify terms prior to the loan becoming nonaccrual. Modifications may include rate reductions, payment
forbearance, principal reduction, or other actions with the intent to minimize the loss and/or avoid foreclosure
or repossession of collateral. In cases where a restructure occurs, management measures impairment based
on collateral to support the revised terms of the loan. If the loan is not collateral dependent, impairment is
calculated using the present value of the revised loan terms compared to the investment in the loan prior to the
restructure. TDRs are individually evaluated and provided for in the allowance for loan losses and are therefore
excluded from pooled portfolio allocations. Management continually evaluates loans that are considered TDRs
under the modified loan terms, including payment history and the borrower’s ability to continue to repay the
loan based on continued evaluations of their results of operation and cash flow from operations. Based on this
evaluation, management would no longer consider a loan to be a TDR when the facts support such a conclusion.
There were no loan modifications that were considered TDRs during the year ended December 31, 2012. Loan
modifications that are considered TDRs completed during the year ended December 31, 2011, are as follows:
(in thousands)
36
Commercial
Real estate:
Commercial non-owner occupied/investment
Commercial all other
Residential
Home equity lines of credit
Consumer
Total troubled debt restructurings
Number of
Contracts
-
2
1
-
-
-
3
December 31, 2011
Pre-Modification
Outstanding
Recorded Investment
Post-Modification
Outstanding
Recorded Investment
$ -
$ -
578
739
-
-
-
$ 1,317
578
739
-
-
-
$ 1,317
No loans modified and considered TDRs that were made during the twelve months previous to December 31,
2012 or 2011, have defaulted in the current reporting period.
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CEN TRIC FINANCIAl CORPO RATIO N
Note 5 | Premises and Equipment
Ongoing additions to premises and equipment are recorded at cost. Occupancy and equipment expense includes
depreciation expense of $356,000 and $344,000, respectively, for the years ended 2012 and 2011. Depreciation
expense is calculated on the straight-line method over estimated economic lives: buildings and improvements,
15 to 40 years; leasehold improvements, 10 years; furniture, fixtures and equipment, 3 to 10 years.
Premises and equipment at December 31 was comprised of:
(in thousands)
Land
Buildings and improvements
Leasehold improvements
Furniture, fixtures, and equipment
Subtotal
Less: accumulated depreciation
Premises and equipment - net
2012
$ 2,929
1,728
1,497
1,627
7,781
(1,419)
$ 6,362
2011
$ 2,929
1,535
1,473
1,307
7,244
(1,093)
$ 6,151
During 2012, the Company entered into a contract to construct a branch in Derry Township, Pennsylvania.
At December 31, 2012, this commitment totaled approximately $1,073,000, which is not included in the
Consolidated Balance Sheet.
Lease expense amounted to $211,000 for 2012 and $164,000 for 2011. Future minimum lease payments are
as follows:
(in thousands)
2013
2014
2015
2016
2017
Thereafter
Note 6 | Deposits
Centric’s deposits at December 31 were comprised of:
(in thousands)
Demand, noninterest-bearing
Demand, interest-bearing
Savings
Money market
Time deposits
Scheduled maturities of time deposits are:
(in thousands)
2013
2014
2015
2016
2017
37
$ 267
282
291
300
263
41
$ 1,444
2012
$ 20,645
121,449
18,157
30,068
81,120
$ 271,439
2011
$ 15,830
79,348
21,178
23,646
83,585
$ 223,587
$ 47,310
24,210
3,612
2,207
3,781
$ 81,120
Time deposits in denominations of $100,000 or greater totaled $41,197,000 for 2012 and $39,117,000 for 2011.
f r o m s t r o n g r o o t s g r o w g r e a t c o m mUn i t i e s
CEN TRIC FINANCIAl CORPO RATIO N
Note 7 | Long-Term Debt
As one avenue for funding growth, the Bank is approved by the FHLB for borrowings of up to $91,372,000. At
year-end, $4,263,000 was outstanding and $24,000,000 was held as letters of credit to secure specific deposit
balances. Additional borrowing capacity for FHLB borrowings was $63,109,000 at year-end. The Company also
has a borrowing with another institution in the amount of $2,500,000, which has a stated rate of 5.00 percent
and a maturity date in 2013.
The following table presents borrowings that mature at various dates through 2016 with weighted-average rates
as follows:
(in thousands)
Advances from FHLB
Fixed
Amortizing
Other borrowings
Principal Amount
Rate
2012
2011
2012
$ 2,000
2,263
2,500
$ 6,763
$ 4,130
2,812
2,500
$ 9,442
1.00%
1.17%
5.00%
2.54%
2011
2.21%
1.17%
6.25%
2.97%
The aggregate amount of future principal payments required on these borrowings at December 31, 2012,
is as follows:
(in thousands)
2013
2014
2015
2016
38
$ 5,056
562
569
576
$ 6,763
Note 8 | Stock Plans and 401k
401(k) Plan
The Bank has a 401(k) plan whereby all employees are eligible to participate after 90 days of employment.
Employees may make contributions to the plan, subject to certain limitations based on federal tax laws.
The Bank makes matching contributions of 50 percent of employees’ contributions, subject to a maximum
contribution of 4 percent of an employee’s compensation. Matching contributions vest to the employee on a
graded percentage and are fully vested in five years. For the years ended December 31, 2012 and 2011, expense
attributable to the plan amounted to $29,000 and $12,000, respectively, and is included in salaries and employee
benefits.
Stock Options and Warrants
The Company has a Stock Incentive Plan (the “Plan”) that includes directors and other designated employees.
The Plan covers 240,000 shares of common stock. Shares available for grant at December 31, 2012, were 90,207.
Options granted under the Plan will have an option price at least equal to the fair market value of the common
stock on the date of the grant. The options expire not more than ten years after the date of the grant. Exercise
and vesting dates and terms may vary and are specified at the date of the grant.
In addition to those shares granted under the stock incentive plan, the Company also granted warrants to
designated officers and directors. Warrants expire not more than ten years after the date of the grant. Exercise
and vesting dates and terms may vary and are specified at the date of the grant.
c e n t r i c f i n a n c i a l c o r p o r a t i o n | 2 0 1 2 a n nU a l r e p o r t
CEN TRIC FINANCIAl CORPO RATIO N
Note 8 | Stock Plans and 401k (continued)
Options and warrants of the Plan outstanding at December 31, 2012, consisted of the following:
Outstanding at the beginning of the year
Granted
Exercised
Forfeited
Outstanding at the end of the year
Options
and Warrants
123,121
19,032
-
-
142,153
Weighted-
Average Exercise
Price
$ 5.38
6.00
-
-
$ 5.46
Exercisable at December 31
118,798
$ 5.39
At December 31, 2012, the aggregate intrinsic value of all options and warrants outstanding and exercisable
were approximately $76,000 and $73,000, respectively. The weighted average remaining life of outstanding
and exercisable options and warrants is 6.59 and 6.19 years, respectively. No options were exercised during
2011 or 2012.
For the years ended December 31, 2012 and 2011, stock option compensation expense of $24,000 and
$28,000 was recognized in connection with the option plan, respectively. Tax benefits of $3,000 and $12,000
were recognized relative to these stock options at December 31, 2012 and 2011, respectively. At December
31, 2012, future compensation expense related to non-vested stock option grants is expected to be
recognized as $9,000, $5,000 and $1,000 in 2013, 2014, and 2015, respectively.
39
Common stock warrants were issued in 2006 to certain directors to purchase an aggregate share of common
stock pursuant to the warrant grant. At December 31, 2012, 26,580 shares were outstanding and exercisable
related to these warrants, with a weighted-average exercise price of $4.91. There were no warrants exercised
during 2011 or 2012.
In addition to the options and warrants included in the Plan above, during 2010, the Company also granted
one warrant to each of the directors of the Company, which are not part of the Plan. Each warrant represents
31,500 shares for a total of 315,000 shares, all of which vest only upon a change in control of the Company
and have an exercise price of $5.44. During 2012 and 2011 none of these warrants vested, and the Company
recorded no compensation expense associated with this grant.
f r o m s t r o n g r o o t s g r o w g r e a t c o m mUn i t i e s
CEN TRIC FINANCIAl CORPO RATIO N
Note 8 | Stock Plans and 401k (continued)
The fair value of the options granted during the years ended December 31, 2012 and 2011, was calculated using
the Black-Scholes option pricing model with the following weighted-average assumptions:
Nonemployee director
stock plans
2012
2011
Employee stock plans
2012
2011
Exercise
Price
Dividend
yield
Expected
volatility
Expected
Life (years)
Risk-Free
Interest Rate
value
Black Scholes
$6.00
5.71
$6.00
5.78
0.00%
0.00
14.10%
14.09
0.00%
0.00
13.63%
14.07
5
5
6.5
6.5
0.79%
1.53
$0.86
0.91
1.37%
2.27
$1.08
1.22
Restricted Stock
Under the Plan, the Company awarded 19,838 restricted shares to non-employee directors and executive officers
subject to vesting and other provisions. At December 31, 2012, 6,952 shares granted to the Plan participants had
vested and been distributed. No shares vested during 2011.
The following table summarizes transactions regarding restricted stock under the Plan:
40
Non-vested shares at the beginning of the year
Granted
Vested
Forfeited
Non-vested shares at the end of the year
Number of
Restricted Shares
11,436
2,300
(6,952)
-
6,784
Weighted-
Average Grant Date
Price Per Share
$ 5.52
6.00
5.44
-
$ 5.76
For the years ended December 31, 2012 and 2011, compensation expense of $30,000 and $23,000 was
recognized in connection with restricted stock, respectively. Tax benefits of $10,000 and $8,000 were recognized
relative to these shares at December 31, 2012 and 2011, respectively. Future compensation expense related
to non-vested restricted stock at December 31, 2012 is $9,000, $6,000 and $1,000 in 2013, 2014, and 2015,
respectively.
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CEN TRIC FINANCIAl CORPO RATIO N
Note 9 | Federal Income Taxes
The provision (benefit) for income taxes consists of the following for the years ended December 31:
(in thousands)
Currently payable
Deferred taxes
Valuation allowance against deferred tax asset
Total income tax expense (benefit)
2012
$ 188
113
-
$ 301
2011
$ 48
257
(751)
$ (446)
The following temporary differences gave rise to the net deferred tax assets at December 31:
(in thousands)
Deferred tax assets:
Allowance for loan losses
Impairment losses on securities
Stock incentive expense
Uncollected interest
Unrealized losses on securities held to maturity
Other real estate expense
Other
Total deferred tax assets
Deferred tax liabilities:
Goodwill and core deposit intangible
Prepaid expenses
Loan origination costs
Unrealized gains on securities available for sale
Premises and equipment
Other
Total deferred tax liabilities
Net deferred tax assets
2012
2011
$ 992
53
29
9
43
52
44
1,222
$ 844
228
28
83
142
4
40
1,369
50
123
176
65
164
6
584
$ 638
40
112
166
147
111
25
601
$ 768
41
The Company has been in existence since February 8, 2007, and accumulated a net operating loss during its first
three years of operation. As such, in 2009, management established a valuation allowance of $1,265,000 for its
deferred tax assets, primarily the accumulated future tax benefits attributed to the operating loss carryforward
and loan loss provisions since it was more likely than not that realization of these deferred assets would not be
fully supported at that time. At December 31, 2011, the Company had fully used the operating loss carryforward.
The Company no longer held a valuation allowance at December 31, 2012 or 2011.
The total provision (benefit) for income taxes is different from that computed at the statutory rates due to the
following items for the years ended December 31:
(in thousands)
Computed statutory tax expense
Valuation allowance
Other, net
2012
$ 343
-
(42)
$ 301
2011
$ 326
(751)
(21)
$ (446)
f r o m s t r o n g r o o t s g r o w g r e a t c o m mUn i t i e s
CEN TRIC FINANCIAl CORPO RATIO N
Note 9 | Federal Income Taxes (continued)
The Company utilizes a recognition threshold and a measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from
tax positions should be recognized in the financial statements only when it is more likely than not that the tax
position will be sustained upon examination by the appropriate taxing authority that would have full knowledge
of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured
at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.
Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized
in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax
positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first
subsequent financial reporting period in which that threshold is no longer met.
There is currently no liability for uncertain tax positions and no known unrecognized tax benefits. The Company
recognizes, when applicable, interest and penalties related to unrecognized tax benefits in the provision for
income taxes in the Consolidated Statement of Income. With few exceptions, the Company is no longer subject
to U.S. federal, state, or local income tax examination by tax authorities for years before 2009.
Note 10 | Related Party Transactions
Centric has transactions in the ordinary course of business with its directors, their immediate families, and
affiliated companies (commonly referred to as related parties).
42
In management’s opinion, all loans and deposits with related parties are on the same terms, including interest
rates and collateral, as those prevailing at the time for comparable transactions with other customers. At
December 31, 2012, loans to related parties were $14,370,000 and deposits by related parties totaled $6,730,000.
At December 31, 2011, loans to related parties were $13,215,000 and deposits by related parties totaled
$3,227,000.
Related party loan activity is summarized as follows:
(in thousands)
Balance at the beginning of the period
Additions
Reductions
Balance at end of period
2012
$ 13,215
3,880
2,725
$ 14,370
2011
$ 6,635
7,479
899
$ 13,215
All of Centric’s directors are customers of the Bank. Centric shareholders number approximately 183 and many
are Bank customers situated in the south central Pennsylvania community. Conversely, the Bank is a customer
of some shareholder-related entities in the ordinary course of business. The Bank also had a joint venture
arrangement with an insurance agency affiliated with a director that began in 2001. At December 31, 2012,
the investment in the insurance agency had been sold. During 2012, related party transactions include $96,000
of purchases and $16,000 in revenue; in 2011, there were $79,000 of purchases and $19,000 in revenue.
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Note 11 | Unfunded Credit Commitments
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to
meet the financing needs of its customers. These financial instruments include commitments to extend credit
and letters of credit by Centric’s banking subsidiary. Such instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the balance sheet.
The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument
is represented by the contractual amount of those instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet instruments.
Unfunded lending commitments at year-end:
(in thousands)
Commitment to grant loans
Unfunded commitments under lines of credit
Standby letters of credit
Total unfunded lending commitments
2012
$ 14,852
37,742
1,433
$ 54,027
2011
$ 11,084
28,232
636
$ 39,952
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of
any condition established in the contract. Since many of the commitments are expected to expire without
being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
Commitments generally have fixed expiration dates or other termination clauses and may require payment of
a fee. The Bank evaluates each customer’s creditworthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary upon extension of credit, is based on management’s
credit evaluation. Collateral held varies but may include personal or commercial real estate, accounts receivable,
inventory, and equipment. Commitments under lines of credit presented above include lines that will be funded
only to the extent that the Bank receives corresponding augmentation of satisfactory collateral.
43
Outstanding letters of credit are conditional commitments issued by the Bank to guarantee performance of a
customer to a third party. Most of these standby letters of credit expire within 12 months. The credit risk involved
in issuing letters of credit is essentially the same as in extending comparable loans to customers. The Bank
requires collateral supporting these letters of credit as deemed necessary. Management believes that the
proceeds through liquidation of such collateral would be sufficient to cover the maximum potential amount of
future payments required under the corresponding guarantees.
The Bank did not incur any losses in 2012 or 2011 associated with financial instruments with off-balance sheet risk.
The Bank purchased an investment security prior to the year ended December 31, 2012, for $496,000 that will be
issued and settled in January 2013.
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Note 12 | Regulatory Matters
The Company is subject to various regulatory capital requirements administered by the federal banking
agencies. The Company must meet the minimum capital requirements or face mandatory and discretionary
actions by regulators that could have a direct material effect on Centric and its financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must
meet specific capital guidelines that involve quantitative measures of the Centric’s assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting practices. Centric’s capital amounts and
classification are also subject to qualitative judgments by the regulators about components, risk-weightings,
and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain
minimum amounts and ratios of Total and Tier 1 capital (as defined in the regulations) to risk-weighted assets
and of Tier 1 capital to average assets.
(in thousands)
Actual
Amount
Ratio
Total capital (to risk-weighted assets)
Company
Bank
Tier 1 capital (to risk-weighted assets)
Company
Bank
Tier 1 capital (to total assets)
Company
Bank
$ 24,547
26,568
21,994
24,014
21,994
24,014
12.04%
13.03%
10.79%
11.78%
7.44%
8.14%
44
(in thousands)
Actual
Amount
Ratio
Total capital (to risk-weighted assets)
Company
Bank
Tier 1 capital (to risk-weighted assets)
Company
Bank
Tier 1 capital (to total assets)
Company
Bank
$ 21,670
23,478
19,409
21,216
19,409
21,216
12.00%
13.00%
10.74%
11.74%
8.03%
8.79%
December 31, 2012
For Capital Adequacy
Purposes
Amount
Ratio
$ 16,310
16,312
8,153
8,154
11,825
11,800
8.00%
8.00%
4.00%
4.00%
4.00%
4.00%
December 31, 2011
For Capital Adequacy
Purposes
Amount
Ratio
$ 14,447
14,448
7,229
7,229
9,668
9,655
8.00%
8.00%
4.00%
4.00%
4.00%
4.00%
Minimum to be Well
Capitalized
Amount
Ratio
$ N/A
20,390
N/A
10.00%
N/A
12,231
N/A
14,751
N/A
6.00%
N/A
5.00%
Minimum to be Well
Capitalized
Amount
Ratio
$ N/A
18,060
N/A
10.00%
N/A
10,843
N/A
12,068
N/A
6.00%
N/A
5.00%
Dividends are generally restricted by federal banking laws based upon regulatorily defined profit. The Company
does not intend to declare cash dividends for the foreseeable future.
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Note 13 | Fair value Measurements
The following disclosures show the hierarchal disclosure framework associated with the level of pricing
observations utilized in measuring assets and liabilities at fair value. The three broad levels are defined as follows:
Level I: Quoted prices are available in active markets for identical assets or liabilities as of the reported date.
Level II: Pricing inputs are other than the quoted prices in active markets, which are either directly or indirectly
observable as of the reported date. The nature of these assets and liabilities includes items for which quoted
prices are available but traded less frequently and items that are fair-valued using other financial instruments,
the parameters of which can be directly observed.
Level III: Valuations derived from valuation techniques in which one or more significant inputs or significant
value drivers are unobservable.
This hierarchy requires the use of observable market data when available.
The following tables present the assets reported on the Consolidated Balance Sheet at their fair value as of
December 31, 2012 and 2011, by level within the fair value hierarchy. Financial assets and liabilities are classified
in their entirety based on the lowest level of input that is significant to the fair value measurement.
(in thousands)
December 31, 2012
Level I
Level II
Level III
Total
Assets:
Fair value measured on a recurring basis:
U.S. government agency securities
Municipal securities
Mortgage-backed securities:
Government sponsored or guaranteed -
Fair value measured on a non-recurring basis:
Other real estate owned
Impaired loans
$ -
-
-
-
$ 10,272
1,980
$ -
-
$ 10,272
1,980
45
14,409
-
14,409
-
-
993
3,673
993
3,673
(in thousands)
December 31, 2011
Level I
Level II
Level III
Total
Assets:
Fair value measured on a recurring basis:
U.S. government agency securities
Municipal securities
Mortgage-backed securities:
Government sponsored or guaranteed -
Privately issued residential
-
Fair value measured on a non-recurring basis:
Other real estate owned
Impaired loans
$ -
-
-
-
$ 9,027
305
$ -
-
$ 9,027
305
15,613
78
-
-
15,613
78
-
-
720
2,949
720
2,949
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CEN TRIC FINANCIAl CORPO RATIO N
Note 13 | Fair value Measurements (continued)
During the valuation process for impaired loans, management may rely on unobservable inputs to derive fair
value. The unobservable inputs may include measurements such as: future selling costs, estimates on future
income generation and discounts to appraised value.
The following table presents quantitative information about the Level III significant unobservable inputs for
assets and liabilities measured at fair value on a non-recurring basis at December 31, 2012:
(in thousands)
Impaired loans
Fair value
$ 3,673
valuation Technique
Appraisal of collateral
Quantitative Information about Level III Fair value Measurements
Range
10% - 20%
0% - 15%
0 - 12 months
Unobservable Input
Appraisal adjustments
Liquidation expenses
Holding period
Other real estate owned
993
Appraisal of collateral
Appraisal adjustments
Liquidation expenses
10% - 20%
0% - 15%
Note 14 | Fair value of Financial Instruments
The fair value of the Company’s financial instruments is as follows:
(in thousands)
46
December 31, 2012
Carrying
value
Fair
value
Level I
Level II
Level III
Financial assets:
Cash and cash equivalents
Investments in certificates
of deposits
Securities available for sale
Securities held to maturity
Net loans
Loans held for sale
Regulatory stock
Cash surrender value
life insurance
Mortgage servicing rights
and credit enhancement fees
Accrued interest receivable
Financial liabilities:
Non-maturity deposits
Time deposits
Other borrowings
Accrued interest payable
$ 45,893
$ 45,893
$ 45,893
$ -
$ -
9,831
26,661
929
205,591
1,059
1,060
9,831
26,661
951
207,878
1,059
1,060
9,831
-
-
-
1,059
1,060
-
26,661
-
-
-
-
-
-
951
207,878
-
-
1,387
1,387
1,387
-
-
40
597
50
597
-
597
-
-
50
-
$ 190,319
81,120
6,763
98
$ 190,319
82,013
6,786
98
$ 190,319
-
-
98
$ -
-
-
-
$ -
82,013
6,786
-
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Note 14 | Fair value of Financial Instruments (continued)
The fair value of the Company’s financial instruments is as follows:
(in thousands)
Financial assets:
Cash and cash equivalents
Investments in certificates of deposit
Securities available for sale
Securities held to maturity
Net loans
Loans held for sale
Regulatory stock
Cash surrender value life insurance
Mortgage servicing rights
and credit enhancement fees
Accrued interest receivable
Financial liabilities:
Deposits
Other borrowings
Accrued interest payable
December 31, 2011
Carrying
value
Fair
value
$ 32,336
5,394
25,023
931
177,460
395
807
1,337
$ 32,336
5,394
25,023
896
184,033
395
807
1,337
67
570
68
570
$ 223,587
9,442
126
$ 224,722
9,459
126
47
Financial instruments are defined as cash, evidence of ownership interest in an entity, or a contract that creates
an obligation or right to receive or deliver cash or another financial instrument from/to a second entity on
potentially favorable or unfavorable terms.
Fair value is defined as the amount at which a financial instrument could be exchanged in current transactions
using active trading markets. If a quoted market price is available for a financial instrument, the estimated fair
value would be calculated based upon the market price per trading unit of the instrument.
If no readily available market exists, the fair value estimates for financial instruments should be based upon
management’s judgment regarding current economic conditions, interest rate risk, expected cash flows, future
estimated losses, and other factors as determined through various option pricing formulas.
As many of these assumptions result from judgments made by management based upon estimates that are
inherently uncertain, the resulting estimated fair values may not be indicative of the amount realizable in the
sale of a particular financial instrument. In addition, changes in assumptions on which the estimated fair values
are based may have a significant impact on the resulting estimated fair values.
As certain assets such as deferred tax assets and premises and equipment are not considered financial
instruments, the estimated fair value of financial instruments would not represent the full value of Centric.
Centric employed simulation modeling in determining the estimated fair value of financial instruments for
which quoted market prices were not available based upon the following assumptions:
Cash and Cash Equivalents, Investments in Certificates of Deposit, Regulatory Stock, Cash Surrender
value Life Insurance, Accrued Interest Receivable, and Accrued Interest Payable
The fair value is equal to the current carrying value.
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CEN TRIC FINANCIAl CORPO RATIO N
Note 14 | Fair value of Financial Instruments (continued)
Investment Securities
The fair market value of investment securities is equal to the available quoted market price. If no quoted market
price is available, fair value is estimated using the quoted market price for similar securities.
Loans
Fair value is estimated by discounting future cash flows using current market inputs at which loans with similar
terms and qualities would be made to borrowers of similar credit quality. Where quoted market prices were
available, primarily for certain residential mortgage loans, such market rates were utilized as estimates for fair
value.
Mortgage Servicing Rights and Credit Enhancement Fees
The fair value for mortgage servicing rights is estimated by discounting contractual cash flows and adjusting
for prepayment estimates. Discount rates are based upon rates generally charged for such loans with similar
characteristics.
Deposits and Other Borrowings
The fair values of certificates of deposit and other borrowed funds are based on the discounted value of
contractual cash flows. The discount rates are estimated using rates currently offered for similar instruments with
similar remaining maturities. Demand, savings, and money market deposit accounts are valued at the amount
payable on demand as of year-end.
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These financial instruments are generally not subject to sale and estimated fair values are not readily available.
The carrying value is represented by the net deferred fees arising from the unrecognized commitment or
letter of credit. The fair value is determined by discounting the remaining contractual fee over the term of the
commitment using fees currently charged to enter into similar agreements with similar credit risk. Neither the
carrying value nor the fair value is considered material for disclosure. The contractual amounts of unfunded
commitments and letters of credit are presented in Note 11.
Note 15 | Participation in U.S. Treasury Programs
Centric entered into a Securities Purchase Agreement (“Agreement”) on December 18, 2009, with the U.S.
Department of the Treasury (“Treasury”) in association with its participation in the Capital Purchase Program
(“CPP”) of the Emergency Economic Stabilization Act of 2008 (“EESA”). Pursuant to the agreement, Centric sold
to the Treasury 6,056 shares of fixed rate, noncumulative Senior Perpetual Preferred Stock, par value $1.00 per
share, having a liquidation amount of $1,000 per share, with an attached warrant to purchase 182 shares of
Centric’s preferred stock for the aggregate price of $6.1 million.
The preferred stock Series A qualifies as Tier 1 capital and pays quarterly dividends, beginning February 2010, at
a rate of 5 percent per year, for the first five years and 9 percent per year thereafter. The warrants pay dividends
quarterly, beginning February 2010, at a rate of 9 percent. Under the terms of the CPP, the preferred stock
may be redeemed with the approval of the Federal Reserve in the first three years with the proceeds from the
issuance of certain qualifying Tier 1 capital or after three years at par value plus accrued and unpaid dividends.
On July 14, 2011, Centric elected to participate in the Treasury’s Small Business Lending Fund (“SBLF”) program.
With the execution of this Securities Purchase Agreement with the Secretary of the Treasury, the Company paid
back the monies from its participation in Capital Purchase Program. Pursuant to the agreement Centric sold to
the Treasury 7,492 shares of senior non-cumulative perpetual preferred stock, Series C at $1,000 liquidation value
per share, for the price of $7,492,000.
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CEN TRIC FINANCIAl CORPO RATIO N
Note 15 | Participation in U.S. Treasury Programs (continued)
The preferred stock Series C qualifies as Tier 1 capital and pays quarterly dividends, beginning October 2011.
Divided rates are determined upon funding and for the next nine calendar quarters, adjusted quarterly (based
on outstanding loans at the end of the second previous quarter). The percentage of the increase in lending
determines the dividend rate. Dividend rates for the tenth quarter after funding through the end of the first 4.5
years are based on the increased lending at the end of the eighth quarter after funding. The dividend rate after
4.5 years, if the funding has not been repaid, is set at 9 percent. For both 2012 and 2011, Centric qualified for a
dividend rate of 1 percent per year due to its lending growth. Under the terms of the SBLF program, with the
approval of its regulator, an institution may exit the program at any time by repaying the funding provided plus
any accrued dividends.
Note 16 | Common Stock
On November 15, 2010, Centric Financial Corporation ended a private stock offering of up to 1,000,000 shares of
$1.00 par value common stock to accredited investors. Accompanying the purchase of common shares during
the offering was a warrant to purchase an equal amount of common shares at $6.19 per share (adjusted for the
5 percent stock dividend paid April 30, 2011) exercisable for the period of April 15, 2011 through July 15, 2011.
The exercisable period for the purchase of warrants was extended through October 31, 2012 at the Board of
Directors meeting in March 2011. The value of the services received in connection with this agreement has been
measured utilizing the Black-Scholes model as of the date of the issuance of the warrant. Due to the higher
purchase price of the shares under this warrant over the current price of Centric’s stock, and the lack of volatility
in Centric’s stock price, there was no expense associated with these instruments, nor any impact in diluted
earnings per share.
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Note 17 | Subsequent Events
Management has reviewed events occurring through March 1, 2013, the date the financial statements were
issued and no subsequent events have occurred requiring accrual or disclosure.
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Board of Directors
BOARD OF DIRECTORS
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Standing left to right: Robert V. Gothier Sr., CEO, RVG Management & Development Company; Steven P. Dayton, Retired, Founder and
Former CEO, CODI Inc.; Frank A. Conte, Managing Partner, Conte Wealth Advisors, LLC; Dr. Jeffrey W. Keiser, Partner & President, Forest Hills
Dental Associates, P.C.; R. Luke Rohrbaugh, Retired, Director–Investments, Wells Fargo Advisors; Fred M. Essis, President & CEO, Essis & Sons
Carpet One; Thomas H. Flowers, Certified Public Accountant, Flowers & Flowers, CPA; Kerry A. Pae, Secretary of the Board, President & Owner,
Kerry Pae Auctioneers Inc.; and Renée J. Conner, CEO/Owner, PensionPro Software LLC.
Seated left to right: Donald E. Enders Jr., Chairman of the Board, President, Colonial Park Realty Company, Enders Insurance Associates;
Patricia A. Husic, President & CEO, Centric Financial Corporation and Centric Bank; and John A. Maher, CPA, Vice Chairman of the Board,
Member, Pennsylvania House of Representatives.
SENIOR MANAGEMENT TEAM
Seated left to right: Sandra L.J. Schultz,
Executive Vice President, Chief Financial Officer;
Patricia A. Husic, President & CEO; and
Jeffrey W. Meyers, Executive Vice President,
Chief Lending Officer.
Standing left to right: Leslie A. Meck,
Senior Vice President, Chief Retail Officer and
Shane E. McNaughton, Senior Vice President,
Management Information Systems.
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COMMERCIAL LENDING SERvICES
Seated left to right: Paul B. Zwally, Vice President, Commercial
Lending; Jeffrey W. Myers, Executive Vice President, Chief
Lending Officer; and Michael J. Watson, Vice President,
Commercial Lending.
Standing left to right: Eric Fischer, Assistant Vice President,
Commercial Lending; Michael J. Meck, Vice President,
Commercial Lending; Cheryl C. Sakalosky, Vice President,
Commercial Lending; Gale E. Gallo, Mortgage Lending Officer;
Maura E. Fay, Consumer Loan Underwriter; Jeian J. Rauchut,
Vice President, Cash Management Manager; and Robert E.
McDonald, Vice President, Portfolio Manager.
CREDIT AND RISk MANAGEMENT
Seated left to right: Peggy J. Elder, Vice President, Loan
Operations & Compliance Manager and Todd Gelbaugh II,
Credit Analyst.
Standing left to right: Cory Bishop, Senior Credit Analyst;
Douglas Martin, Credit Analyst; and Sascha C. Leftault,
Assistant Vice President, Credit Officer.
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Coming Soon!
DERRy TOWNSHIP FINANCIAL CENTER
1201 West Governor Road
Hummelstown, PA 17036
(717) 533-7626
Fax (717) 533-7670
Lobby & Drive-Thru Hours
Monday-Thursday 8:30 a.m. to 5 p.m.
Friday 8:30 a.m. to 6:00 p.m.
Saturday 8:30 a.m. to 12 noon
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Centric Bank Financial Center Teams
LOWER PAXTON FINANCIAL CENTER (left)
Left to right: Tia L. Zidik, Personal Banker; Vicky L. LaCour,
Assistant Financial Center Manager; Karen M. Shepherd,
Personal Banker; Amber N. Spotts, Personal Banker; and
Flow Higgins, Financial Center Manager.
SILvER SPRING FINANCIAL CENTER (below)
Left to right: Dorothy L. Strine, Personal Banker;
Marianna Golovkina, Personal Banker Manager; Lois M.
Zeigler, Customer Service Representative; and Mary Anne
Bayer, Assistant Vice President, Financial Center Manager.
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CAMP HILL FINANCIAL CENTER (left)
Left to right: Angela M. Clements, Personal Banker; Vickie L. Broughton,
Assistant Vice President, Financial Center Manager; Sharon Shuff,
Personal Banker; Shawn W. Wright, Customer Service Representative;
and Kim Lahnstein, Personal Banker Manager and Trainer.
Centric Bank Financial Centers
LOWER PAXTON FINANCIAL CENTER
SILvER SPRING FINANCIAL CENTER
CAMP HILL FINANCIAL CENTER
4320 Linglestown Road
Harrisburg, PA 17112
(717) 657-7727
Fax (717) 657-5036
6480 Carlisle Pike
Mechanicsburg, PA 17050
(717) 591-1360
Fax (717) 591-1363
1625 Market Street
Camp Hill, PA 17011
(717) 730-2816
Fax (717) 730-2813
Lobby & Drive-Thru Hours
Lobby & Drive-Thru Hours
Lobby & Drive-Thru Hours
Monday-Thursday 8:30 a.m. to 5 p.m.
Friday 8:30 a.m. to 6:00 p.m.
Saturday 8:30 a.m. to 12 noon
Monday-Thursday 8:30 a.m. - 5 p.m.
Friday 8:30 a.m. to 6:00 p.m.
Saturday 8:30 a.m. to 12 noon
Monday-Thursday 8:30 a.m. - 5 p.m.
Friday 8:30 a.m. to 6:00 p.m.
Saturday 8:30 a.m. to 12 noon
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