Community Heritage Financial, Inc. Reports Earnings for the Third Quarter of 2023

In this article:

MIDDLETOWN, Md., Oct. 24, 2023 /PRNewswire/ -- Community Heritage Financial, Inc. (the "Company") (OTC PK: CMHF), the parent company of Middletown Valley Bank ("MVB" or the "Bank"), announced today that for the nine months ended September 30, 2023 the Company earned net income of $3.37 million or $1.16 per share compared to $5.41 million or $2.40 per for the nine months ended September 30, 2022. Third quarter 2023 net income was $1.37 million or $0.47 per share compared to second quarter 2023 net income of $616 thousand or $0.21 per share and third quarter 2022 net income of $1.52 million or $0.68 per share.

(PRNewsfoto/Community Heritage Financial)
(PRNewsfoto/Community Heritage Financial)

The Company continued strong balance sheet growth during the third quarter of 2023 growing from total assets of $974.3 million as of June 30, 2023 to total assets of $995.7 million as of September 30, 2023.  Most of the balance sheet growth resulted from core deposit growth of $38.1 million for the quarter.  The bulk of the deposit growth was attributed to bolstered or new commercial money market/ICS relationships with only modest growth in retail time deposit balances ($3.9 million) for the quarter.  Loan balances grew by $1.1 million for the quarter but were impacted by several strategic management decisions and transactions which included: 1) management decision to place more emphasis on moving residential mortgage production towards secondary market and away from portfolio loans, 2) a $5 million pay-off on a watch list commercial real estate credit resulting from the sale of the property by the borrower.  On a year-over-year basis, total outstanding loan balances grew to $798.0 million as of September 30, 2023, an increase of $70.7 million or 9.7% compared to September 30, 2022 loan balances of $727.3 million.  While loan balances have increased during the past year, credit quality has remained strong with non-performing assets to total assets going from 0.20% for the quarter ended September 30, 2022 to 0.19% for the quarter ended September 30, 2023.

The third quarter saw a stabilization in net interest margin with a Bank quarterly average for the third quarter of 2023 of 2.69%, down only slightly from 2.74% in the second quarter of 2023.  Net interest income increased from $6.12 million in the second quarter of 2023 to $6.30 million in the third quarter of 2023.   Interest income for the third quarter was $11.11 million, an increase of $804 thousand compared to $10.30 million for the second quarter of 2023.  The increase in interest revenue outpaced the increase in interest expense for the quarter.  Interest expense increased $629 thousand, going from $4.18 million in the second quarter of 2023 to $4.81 million for the third quarter.

Higher interest rates continue to impact residential mortgage volumes, which are a main contributor to non-interest income at the Bank.  While mortgage volumes are lower when compared to 2022 levels, low housing supply has continued to keep home values stable and markets open for residential lending. This has resulted in overall non-interest income for the Bank to stabilize and show a slight improvement from $804 thousand in the second quarter to $841 thousand in the third quarter of 2023. Operating expenses increased by $279 thousand  from $5.87 million in the second quarter of 2023 to $6.15 million in the third quarter of 2023.  The increase was related to one-time salary and benefit costs in the third quarter of 2023 of approximately $500 thousand associated with management transition and Company structural changes.

Due to a more favorable forecast based on reduced evidence of a pending recession probability and other economic factors used in the CECL model, the calculated allowance for credit losses to loans ratio as of September 30, 2023 was 0.92%, a decrease of 0.10% when compared to 1.02% as of June 30, 2023.  Based on the loan growth as noted above and updated CECL metrics, the adjustment for credit losses for the second quarter was a recovery of $843 thousand.

Quarterly Highlights – 3Q23 vs 2Q23

  • Tangible book value per share increased by $0.32 from $22.86 per share as of June 30, 2023 to $23.18 as of September 30, 2023. The increase resulted from $1.37 million in earnings for the quarter, partially off-set by an increased accumulated other comprehensive loss position, which went from an unrealized loss of $9.61 million as of June 30, 2023 to an unrealized loss of $9.97 million as of September 30, 2023.

  • Outstanding loan balances increased by $1.1 million for the third quarter of 2023 compared to the second quarter of 2023. The net growth resulted from a decrease in commercial loans of $4.6 million due in part to the $5.0 million watch list loan pay-off, $5.9 million growth in residential mortgage loans and a slight decrease of approximately $200 thousand in consumer/other loans.

  • Deposit balances increased to $889.0 million as of September 30, 2023, an increase of $38.1 million for the third quarter when compared to June 30, 2023 balances of $850.9 million. Non-interest bearing demand deposits increased $4.1 million for the quarter while interest-bearing deposits increased $34.0 million. Interest-bearing deposit growth was driven by commercial relationship growth in money market and savings products with approximately $30.1 million in growth. Retail time deposits made up only $3.9 million of the overall deposit growth for the quarter. There were no new wholesale brokered deposits added during the third quarter of 2023.

  • The strong deposit growth during the quarter allowed the Bank to retire $17 million in borrowed funds with balances moving from $32 million as June 30, 2023 to $15 million as of September 30, 2023.

  • Net interest margin was down from 2.74% in the second quarter of 2023 to an average of 2.69% in the third quarter of 2023 and continued to be impacted by higher funding costs. However, margin showed signs of stabilization with earning asset yields repricing at or near the pace of funding cost increases near the end of the third quarter. Third quarter margin at the Bank ranged from 2.67% in July, 2.71% in August, and 2.70% in September resulting in a quarterly average of 2.69%.

  • Based on updated CECL model calculations for September 30, 2023, the allowance for credit losses to total loans ratio was 0.92% at September 30, 2023, down .10% from 1.02% as of June 30, 2023. The calculations resulted in a total recovery of $843 thousand for the third quarter of 2023 broken down as follows: a loan related recovery of $779 thousand , a recovery of $48 thousand related to unfunded commitments and a recovery of $16 thousand related to held-to-maturity securities. The decrease in the calculated reserve requirements were driven by reduced evidence of a pending recession and other economic factors within the CECL model with no adjustments to other qualitative factor assumptions or methodology.

Quarterly Highlights – 3Q23 vs 3Q22

  • Tangible book value per share of $23.18 as of September 30, 2023 was an increase of $0.39 per share from $22.79 as of September 30, 2022. Book value per share comparisons on a year-over-year basis include the impact of increased shares outstanding to 2,905,973 as of September 30, 2023 compared to 2,251,320 as of September 30, 2022 as the result of equity compensation awards and a common stock capital raise in October of 2022. Accumulated other comprehensive loss, which also factors into the calculation, was a loss of $9.97 million at September 30, 2023 compared to a loss of $10.08 million as of September 30, 2022.

  • Loan balances of $798.0 million as of September 30, 2023 were up $70.7 million or 9.7% compared to September 30, 2022 balances of $727.3 million. Growth was split between commercial of $16.9 million, residential mortgage of $51.8 million and consumer/other of $ 2.0 million.

  • Deposit balances increased $110.7 million or 14.2% from $778.3 million as of September 30, 2022 to $889.0 million as of September 30, 2023. Due to higher market rates for deposit products we have seen a shift in non-interest deposit balances to interest bearing deposit balances over the past year. Non-interest bearing demand balances dropped $29.3 million from $277.7 million as of September 30, 2022 to $248.4 million as of September 30, 2023. Interest bearing deposit balances increased on a year-over-year basis from $500.5 million at September 30, 2022 to $640.6 million as of September 30, 2023.

  • Net interest income for the third quarter of 2023 was $6.30 million compared to $7.13 million for the third quarter of 2022. Rate increases by the Federal Reserve over the past year have led to higher funding costs and higher interest expense. Interest expense for the third quarter of 2022 was $1.30 million compared to interest expense of $4.81 million for the third quarter of 2023, an increase of $3.51 million. Interest income for the same period increased by $2.68 million, resulting in the overall decrease to interest income. However, as noted above, over the third quarter of 2023 margin began to stabilize with the cost of funds beginning to level off while earning asset yields continued upward trends.

  • Non-interest income was down $336 thousand from $1.18 million in the third quarter of 2022 to $841 thousand for the third quarter of 2023. Higher market rates for residential mortgage loans resulted in lower refinance and secondary residential mortgage activity on a year-over-year basis, which accounted for most of the reduction.

  • Non-interest expense for the third quarter of 2023 was $6.15 million, an increase of $453 thousand compared to $5.69 million for the third quarter of 2022. As noted above, the increase resulted from one-time salary and benefit costs of approximately $500 thousand during the third quarter of 2023 associated with management transition and Company structural changes.

Dividend

A dividend of $0.06 per share was declared by the Board of Directors on October 20, 2023, for shareholders of record as of November 3, 2023, and payable on November 10, 2023.

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

Community  Heritage Financial, Inc. and Subsidiaries

Consolidated Balance Sheets
















September 30,


June 30,


March 31,


December 31,


September 30,




2023


2023


2023


2022


2022




(Unaudited)


(Unaudited)


(Unaudited)


(Audited)


(Unaudited)













Assets











Cash and due from banks

$

36,448,539

$

14,946,927

$

12,821,166

$

15,393,207

$

15,829,569


Total cash and cash equivalents


36,448,539


14,946,927


12,821,166


15,393,207


15,829,569













Securities available-for-sale, at fair value


39,917,313


41,460,794


43,142,854


39,510,486


39,352,159













Securities held-to-maturity


97,217,237


98,496,558


99,914,183


101,005,393


102,703,746


Less: allowance for credit losses


(147,457)


(163,259)


(155,381)


-


-


Total securities held-to-maturity


97,069,780


98,333,299


99,758,802


101,005,393


102,703,746














Total securities


136,987,093


139,794,093


142,901,656


140,515,879


142,055,905













Equity securities, at cost


1,363,600


1,527,600


1,740,100


406,400


2,281,400













Loans


798,035,073


796,931,525


757,611,496


748,450,525


727,346,209

Less allowance for credit losses


(7,337,327)


(8,112,952)


(7,855,981)


(7,330,436)


(7,524,423)


Loans, net


790,697,746


788,818,573


749,755,515


741,120,089


719,821,786













Loans held for sale


2,879,397


1,923,566


1,703,221


4,725,495


2,536,184

Premises and equipment, net


6,639,595


6,805,822


6,974,776


7,053,532


6,594,337

Right-of-use assets


2,498,508


2,615,519


2,731,604


2,841,736


2,989,453

Accrued interest receivable


2,733,565


2,512,795


2,405,851


2,616,879


2,124,769

Deferred tax assets


5,289,000


5,314,018


5,264,879


5,277,275


5,353,435

Bank-owned life insurance


6,943,992


6,927,341


6,875,378


6,817,058


6,746,834

Goodwill


1,656,507


1,656,507


1,656,507


1,656,507


1,656,507

Other Assets


1,556,491


1,502,676


1,789,199


1,708,412


1,748,574


Total Assets

$

995,694,033

$

974,345,437

$

936,619,852

$

930,132,469

$

909,738,753

























Liabilities











Deposits:











Non-interest-bearing demand

$

248,440,805

$

244,342,167

$

250,702,470

$

276,829,209

$

277,747,419

Interest-bearing


640,593,734


606,528,210


565,130,161


562,601,082


500,526,922


Total Deposits


889,034,539


850,870,377


815,832,631


839,430,291


778,274,341













FRB, FHLB, and fed funds borrowings


15,000,000


32,000,000


30,000,000


-


53,000,000

Subordinated debt, net


14,910,303


14,887,879


14,865,455


14,843,030


14,820,606

Lease liabilities


2,565,151


2,678,348


2,789,614


2,908,707


3,052,126

Accrued interest payable


526,354


273,753


440,611


236,624


382,450

Other liabilities


4,644,608


5,540,871


4,661,833


5,572,659


7,252,244


Total Liabilities


926,680,955


906,251,228


868,590,144


862,991,311


856,781,767













Shareholders' Equity











Common stock, par value $.01; shares authorized 10,000,000; 












shares issued and outstanding September 30, 2023,   


29,060


29,060


29,060


29,060


22,513


June 30, 2023 and December 30, 2022  were 2,905,973 and












September 30, 2022 were 2,251,320.























Additional paid-in-capital


41,035,733


40,949,900


40,895,863


40,861,802


28,580,504

Retained earnings


37,921,329


36,729,931


36,287,937


35,757,761


34,429,771

Accumulated other comprehensive (loss)


(9,973,044)


(9,614,682)


(9,183,152)


(9,507,465)


(10,075,802)


Total Shareholders' Equity


69,013,078


68,094,209


68,029,708


67,141,158


52,956,986














Total Liabilities and Shareholders' Equity

$

995,694,033

$

974,345,437

$

936,619,852

$

930,132,469

$

909,738,753

 

 

Community  Heritage Financial, Inc. and Subsidiaries

Consolidated Statements of Income

(Unaudited)














Three Months Ended


Nine Months Ended




September 30,


June 30,


September 30,


September 30,


September 30,




2023


2023


2022


2023


2022













Interest Income












Loans, including fees

$

10,139,353

$

9,453,437

$

7,656,443

$

28,937,495

$

20,859,443


Securities


763,606


767,524


729,659


2,265,714


2,076,853


Fed funds sold and other


203,555


81,306


42,699


394,564


75,037


     Total interest income


11,106,514


10,302,267


8,428,801


31,597,773


23,011,333













Interest Expense












Deposits


4,316,598


3,421,730


886,091


10,632,515


1,571,957


Borrowed funds


201,753


482,469


155,208


764,681


171,381


Subordinated debt


238,049


238,049


238,050


714,148


714,148


Other Interest Expense


53,259


38,017


23,768


122,421


80,376


     Total interest expense


4,809,659


4,180,265


1,303,117


12,233,765


2,537,862













Net interest income


6,296,855


6,122,002


7,125,684


19,364,008


20,473,471

Provision for (recovery of) credit losses


(842,717)


260,439


423,907


(1,022,669)


1,009,842

Net interest income after provision for (recovery of) credit losses


7,139,572


5,861,563


6,701,777


20,386,677


19,463,629













Non-interest income












Service charges on deposits


202,778


187,426


201,836


577,607


556,446


Earnings bank owned life insurance


8,360


43,672


12,659


102,061


(3,107)


Gain sale of fixed assets


19,907


-


-


19,907


16,508


Mortgage loan income activity


353,586


315,193


737,355


1,148,154


2,397,222


Other non-interest income


256,347


257,221


225,600


509,283


725,493


     Total non-interest income


840,978


803,512


1,177,450


2,357,012


3,692,562













Non-interest expense












Salaries and employee benefits


3,736,317


3,286,113


3,295,141


10,596,052


9,314,325


Occupancy and equipment


842,651


815,251


760,527


2,649,848


2,301,217


Legal and professional fees


242,671


294,626


187,301


722,806


529,207


Advertising


167,531


177,282


142,327


498,960


475,271


Data processing


618,592


688,228


726,602


2,107,807


1,849,786


FDIC premiums


163,731


130,622


137,991


448,385


416,434


Loss sale fixed assets


-


-


-


3,058


-


Other


375,819


476,742


443,659


1,240,003


864,825


     Total non-interest expense


6,147,312


5,868,864


5,693,548


18,266,919


15,751,760

Income before taxes


1,833,238


796,211


2,185,679


4,476,770


7,404,431

Income tax expense


467,482


179,858


665,512


1,104,599


1,992,950

Net Income

$

$1,365,756

$

$616,353

$

$1,520,167

$

$3,372,171

$

$5,411,481













Basic earnings per share

$

0.47

$

0.21

$

0.68

$

1.16

$

2.40

Diluted earnings per share

$

0.47

$

0.21

$

0.67

$

1.15

$

2.40

 

 

Community Heritage Financial, Inc. and Subsidiaries

Selected Financial Data












Income Statement Review
























For the Three Months Ended


For the Nine Months Ended



September, 30


June, 30


September, 30


September, 30


September, 30



2023


2023


2022


2023


2022



(Unaudited)


(Unaudited)


(Audited)


(Unaudited)


(Unaudited)












Interest Income

$

11,106,514

$

10,302,267

$

8,428,801


31,597,773


23,011,333

Interest Expense


4,809,659


4,180,265


1,303,117


12,233,765


2,537,862

Net interest income


6,296,855


6,122,002


7,125,684


19,364,008


20,473,471

Provision for (recovery of) credit losses


(842,717)


260,439


423,907


(1,022,669)


1,009,842

Net interest income after provision for (recovery of) credit losses

$

7,139,572

$

5,861,563

$

6,701,777


20,386,677


19,463,629












Non-interest income

$

840,978

$

803,512

$

1,177,450


2,357,012


3,692,562

Non-interest expense


6,147,312


5,868,864


5,693,548


18,266,919


15,751,760












Yield on interest-earning assets


4.57 %


4.43 %


3.84 %


4.50 %


3.68 %

Cost of interest-bearing liabilities


2.91 %


2.67 %


0.96 %


2.61 %


0.67 %

Efficiency ratio


86.12 %


84.74 %


68.57 %


84.10 %


65.18 %












Balance Sheet Review
























September, 30


June, 30


September, 30







2023


2023


2022







(Unaudited)


(Unaudited)


(Unaudited)
















Total assets

$

995,694,033

$

974,345,437

$

909,738,753





Loans, net of allowance for credit losses


790,697,746


788,818,573


719,821,786





Goodwill 


1,656,507


1,656,507


1,656,507





Deposits


889,034,539


850,870,377


778,274,341





Shareholder's equity


69,013,078


68,094,209


52,956,986



























Asset Quality Review











Non-accrual loans

$

1,882,614

$

1,929,248

$

1,834,074





Non-performing assets


1,882,614


1,929,248


1,834,074



























Non-performing assets to total assets


0.19 %


0.20 %


0.20 %





Non-performing assets to total loans


0.24 %


0.24 %


0.25 %
















Summary of Operating Results
























For the Three Months Ended


For the Nine Months Ended





September, 30


September, 30


September, 30


September, 30





2023


2022


2023


2022





(Unaudited)


(Unaudited)


(Unaudited)


(Unaudited)














Pre-provision for (recovery of) credit losses, pre-tax net income

$

990,522

$

2,609,586

$

3,454,101

$

8,414,273



Provision for (recovery of) credit losses, pre-tax


(842,717)


423,907


(1,022,669)


1,009,842



Tax expense


467,482


665,512


1,104,599


1,992,950



Net Income

$

1,365,756

$

1,520,167

$

3,372,171

$

5,411,481














(dollars in thousands)











Charge-offs

$

19,984

$

-

$

19,984

$

7,108



(Recoveries)


(6,000)


(3,000)


(9,000)


(40,669)



Net charge-offs (recoveries)

$

13,984

$

(3,000)

$

10,984

$

(33,561)














Per Common Share Data






















Common shares outstanding


2,905,973


2,251,320


2,905,973


2,251,320



Weighted average shares outstanding


2,905,973


2,251,320


2,905,973


2,251,320



Diluted shares outstanding


2,932,636


2,253,309


2,930,782


2,253,148














Basic earnings per share

$

0.47

$

0.68

$

1.16

$

2.40



Diluted earnings per share

$

0.47

$

0.67

$

1.15

$

2.40



Dividend paid

$

0.06

$

0.04

$

0.18

$

0.12














Book value per share

$

23.75

$

23.52

$

23.75

$

23.52



Tangible book value per share

$

23.18

$

22.79

$

23.18

$

22.79














Selected Financial Ratios (unaudited)






















Return on average assets


0.55 %

%

0.68 %

%

0.47 %

%

0.85 %

%


Return on average equity


7.95 %

%

11.33 %

%

6.56 %

%

13.33 %

%


Allowance for credit losses to total loans


0.92 %

%

1.03 %

%

0.92 %

%

1.03 %

%


Non-performing assets to total loans


0.24 %

%

0.25 %

%

0.24 %

%

0.25 %

%


Net Charge-offs to total loans


0.00 %

%

0.00 %

%

0.00 %

%

0.00 %

%


Common equity tier 1 (CET1) capital 


12.15 %

%

10.71 %

%

12.15 %

%

10.71 %

%


Tier1 capital


12.15 %

%

10.71 %

%

12.15 %

%

10.71 %

%


Total risk based capital


13.21 %

%

11.86 %

%

13.21 %

%

11.86 %

%


Tier-1 leverage ratio


9.34 %

%

8.50 %

%

9.34 %

%

8.50 %

%


Average equity to average assets


7.13 %

%

6.08 %

%

7.18 %

%

6.33 %

%


Tangible Common Equity/Tangible Common Assets


6.78 %

%

5.65 %

%

6.78 %

%

5.65 %

%


Net interest margin (bank only)


2.69 %

%

3.35 %

%

2.87 %

%

3.38 %

%


Loans to deposits - (EOP)


89.76 %

%

93.78 %

%

89.76 %

%

93.78 %

%


 

 

 

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SOURCE Community Heritage Financial, Inc.

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