MIDDLETOWN, Md., Jan. 29, 2024 /PRNewswire/ -- Community Heritage Financial, Inc. (the "Company" or "CHF") (OTC PK: CMHF), the parent company of Middletown Valley Bank ("MVB" or the "Bank"), announced today that the Company earned net income of $4.3 million or $1.47 per diluted share for the year ended December 31, 2023, a decrease of $2.6 million or 37.3%, compared to net income of $6.9 million or $2.84 per diluted share for the year ended December 31, 2022. Fourth quarter 2023 net income was $923,000 or $.32 per diluted share, a decrease of $443,000 compared to third quarter 2023 net income of $1.4 million and a decrease of $521,000 compared to $1.4 million for the fourth quarter of 2022.
(PRNewsfoto/Community Heritage Financial)
Balance Sheet and Asset Quality
Despite continuation of the challenges of a volatile interest rate environment and uncertain economic conditions during 2023, the Company posted strong growth with total assets increasing 6.3% from $930.1 million on December 31, 2022 to $988.6 million on December 31, 2023. Loans grew to $812.9 million as of December 31, 2023, an increase of $64.5 million or 8.6% from December 31, 2022. Total deposits grew $37.2 million or 4.4% during the year to $876.7 million on December 31, 2023. Asset quality remained strong with non-performing assets to total assets of .18% on December 31, 2023, compared to .19% on December 31, 2022. The ratio of net charge-offs to average total loans was zero percent for each of the years ended 2023 and 2022.
Results from Operations
The volatile interest rate environment challenged earnings during 2023 as the Federal Reserve continued its efforts to rein in inflation. Net income totaled $4.3 million in 2023, representing a decline of $2.6 million compared to 2022. Additional rate increases by the Federal Reserve totaling 100 basis points during the year forced funding costs higher and pressured the Company's net interest margin as deposit rates increased and depositors migrated excess liquidity to higher yielding products. The Company's cost of interest-bearing liabilities increased from .94% in 2022 to 2.71% in 2023. As a result, interest expense increased $12.5 million, from $4.9 million during 2022 to $17.4 million during 2023. The increased funding cost was partially offset by an increase in interest income from $32.4 million in 2022 to $43.5 million in 2023 resulting from loan growth and the upward repricing of the Company's variable rate loan portfolio. As a result, the Company's net interest margin declined from 3.21% in 2022 to 2.76% in 2023. Revenue related to mortgage banking activity declined $921,000 during 2023 compared to 2022 as an increase in mortgage rates dampened activity. Operating expenses increased $3.2 million in 2023 compared to 2022, $2.0 million of which was an increase in salaries and employee benefits expense. Merit, promotional and equity adjustments and costs associated with new hire positions accounted for $549,000 of the increase in salaries and employee benefits expense. In addition, the Company experienced an increase in healthcare insurance of $355,000 as claims activity was higher than historical levels, an increase in other benefits costs of $163,000, and a decrease in the deferral of loan origination cost of $135,000 as a result of lower loan origination volumes. The Company also incurred one-time salary and benefit costs of approximately $380,000 during 2023 related to management transition and staffing structural changes. Occupancy and equipment expense increased from $3.1 million in 2022 to $3.6 million in 2023 as the Company prepared for the opening of a new, limited-service branch facility in 2024, enhanced technology security features of its data processing and electronic banking systems, and recorded (i) $135,000 in costs associated with the early termination of an office lease and (ii) a $101,000 write-down to market value of a vacant parcel of land immediately adjacent to a branch facility. Legal and professional fees grew $218,000 in 2023 compared to 2022 as the Company prepared for FDICIA requirements, which become effective after reaching $1.0 billion in assets. Pressure on the net interest margin, reduced revenue associated with mortgage banking activity and increased operating costs were partially offset by a $747,000 recapture of the provision for credit losses, including the provision for unfunded loan commitments and securities held to maturity. Due to a more favorable forecast of economic conditions and the reduced probability of a recession, the calculated allowance for loan credit losses to loans ratio fell from 1.06% on January 1, 2023 post CECL adoption to .95% on December 31, 2023.
Quarterly Highlights – Q4 2023 vs. Q3 2023
Loans increased $14.9 million during the fourth quarter of 2023 compared to the third quarter of 2023. Net growth in residential real estate, owner occupied commercial real estate, and commercial and industrial loans totaled $6.6 million, $5.2 and $4.8 million, respectively. Non-owner occupied commercial real estate loans declined $2.6 million.
Deposits declined $12.4 million in the fourth quarter of 2023 to $876.7 million as of December 31, 2023, down from $889.0 million as of September 30, 2023. A decline of $25.6 million in interest-bearing transaction accounts was offset by increases of $11.8 million and $1.5 million in DDA and time deposit balances, respectively.
The net interest margin increased from 2.62% during the third quarter 2023 to 2.71% during the fourth quarter. The fourth quarter saw a slowing in the rate of increase in cost of funds, primarily interest-bearing deposits. As a result, net interest income grew $459,000.
Mortgage banking revenue declined $111,000, from $366,000 in the third quarter to $255,000 in the fourth quarter. Mortgage banking activity is highly sensitive to movement in interest rates and somewhat cyclical in nature.
The allowance for loan credit losses to loans ratio was 0.95% on December 31, 2023 compared to 0.92% on September 30, 2023. The provision for credit losses totaled $275,000 in the fourth quarter compared to a recapture of $843,000 in the third quarter.
Quarterly Highlights – Q4 2023 vs. Q4 2022
Tangible book value per share increased $1.35 to $23.88 as of December 31, 2023, compared to $22.53 as of December 31, 2022. The increase on a year-over-year basis was due to earnings, net of dividends and a decrease in the accumulated other comprehensive loss of $1.4 million.
Loans of $812.9 million as of December 31, 2023 grew $64.5 million or 8.6% compared to December 31, 2022. Residential real estate, construction and land development and owner occupied commercial real estate loans grew $48.6 million, $19.1 million and $18.3 million, respectively. Commercial and industrial loans declined $21.5 million.
Total deposits on December 31, 2023 were $876.7 million, an increase of $37.2 million or 4.4% compared to $839.4 million as of December 31, 2022. As of December 31, 2023, brokered deposits totaled $10.0 million. There were no brokered deposits on December 31, 2022.
The net interest margin for the fourth quarter of 2023 was 2.71%, compared to 3.05% for the fourth quarter of 2022. Increased funding costs, as noted previously, pressured the margin in 2023.
Non-interest income totaled $909,000 for the fourth quarter of 2023 compared to $98,000 for the fourth quarter of 2022. Fourth quarter 2022 non-interest income included a one-time reclassification impacting mortgage banking revenue and salaries and employee benefits.
Non-interest expense increased $817,000 in the fourth quarter 2023 compared to the same quarter in 2022, with an increase in salaries and employee benefits accounting for $685,000 of the total increase. As noted previously, fourth quarter 2022 salaries and employee benefits expense was impacted by a one-time reclassification.
Dividend
A dividend of $0.06 per share was declared by the Board of Directors on January 19, 2024, for stockholders of record as of February 2, 2024, and payable on February 9, 2024.
Forward-Looking Statements
This press release may contain forward-looking statements with respect to the Company's financial condition, results of operations and business. Forward-looking statements can be identified by words such as "expects", "anticipates", "believes", "estimates", "projects", "continue", "plans", "intends", the negative of these words and other comparable terminology. These forward-looking statements may be included in comments regarding future financial performance, expected levels of future revenue and expenses such as credit losses, growth strategies, new business initiatives and anticipated trends impacting performance. Forward-looking statements are not historical facts nor an assurance of future performance. While we believe the expectations of forward-looking statements to be reasonable, actual results may differ materially as forward-looking statements are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and often outside of the control of the Company. Therefore, users should not rely on forward-looking statements.
Non-GAAP Financial Measures
The Company may include certain non-GAAP financial measures in this press release. The Company believes these financial measures provide information useful to investors in understanding the Company's performance and performance trends to facilitate comparisons with the performance of others in the industry. These non-GAAP financial measures should not be considered an alternative to GAAP and users should recognize the non-GAAP financial measures presented by the Company might not be comparable to measures of other companies with similar titles.
Community Heritage Financial, Inc. Robert E. (BJ) Goetz, Jr. President & Chief Executive Officer 301-371-3055
Community Heritage Financial , Inc. and Subsidiaries
Balance Sheets (unaudited)
As of Period End
12/31/2023
9/30/2023
6/30/2023
3/31/2023
12/31/2022
ASSETS
Cash and due from banks
$ 16,664,061
$ 36,448,539
$ 14,946,927
$ 12,820,683
$ 15,393,207
Securities available for sale, at fair value
40,927,086
39,917,313
41,460,794
43,142,854
39,510,486
Securities held to matruity
96,111,626
97,217,237
98,496,558
99,914,183
101,005,393
Less allowance for credit losses
103,949
147,457
163,259
155,381
-
Total securities held to maturity
96,007,677
97,069,780
98,333,299
99,758,802
101,005,393
Total securities
136,934,763
136,987,093
139,794,093
142,901,656
140,515,879
Equity securities, at cost
1,363,600
1,363,600
1,527,600
1,740,100
406,400
Loans
812,932,872
798,035,073
796,931,525
757,611,496
748,450,525
Less allowance for loan credit losses
7,742,297
7,337,327
8,112,952
7,855,981
7,330,436
Loans, net
805,190,575
790,697,746
788,818,573
749,755,515
741,120,089
Loans held for sale
1,651,118
2,879,397
1,923,566
1,703,221
4,725,495
Premises and equipment
6,329,832
6,639,595
6,805,822
6,974,776
7,053,532
Right of use asset
2,380,555
2,498,508
2,615,519
2,731,604
2,841,736
Accrued interest receivable
2,972,952
2,733,565
2,512,795
2,405,851
2,616,879
Deferred tax assets
4,766,376
5,289,000
5,314,018
5,264,879
5,277,275
Bank owned life insurance
7,172,917
6,943,992
6,927,341
6,875,378
6,817,058
Goodwill
1,656,507
1,656,507
1,656,507
1,656,507
1,656,507
Other assets
1,544,870
1,556,491
1,502,676
1,789,682
1,708,412
Total Assets
$ 988,628,126
$ 995,694,033
$ 974,345,437
$ 936,619,852
$ 930,132,469
LIABILITIES and SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non-interest-bearing demand
$ 260,204,859
$ 248,440,805
$ 244,342,167
$ 250,702,470
$ 276,829,209
Interest-bearing
616,461,031
640,593,734
606,528,210
565,130,161
562,601,082
Total deposits
876,665,890
889,034,539
850,870,377
815,832,631
839,430,291
FHLB advances and other borrowings
18,000,000
15,000,000
32,000,000
30,000,000
-
Subordinated debt, net
14,932,727
14,910,303
14,887,879
14,865,455
14,843,030
Lease liabilities
2,450,133
2,565,151
2,678,348
2,789,614
2,908,707
Accrued interest payable
368,085
526,354
273,753
440,611
236,624
Other liabilities
5,024,871
4,644,608
5,540,871
4,661,833
5,572,659
Total Liabilities
917,441,706
926,680,955
906,251,228
868,590,144
862,991,311
Shareholders' Equity
Common stock
29,117
29,060
29,060
29,060
29,060
Additional paid in capital
41,052,291
41,035,733
40,949,900
40,895,863
40,861,802
Retained earnings
38,669,620
37,921,329
36,729,931
36,287,937
35,757,761
Accumulated other comprehensive income (loss)
(8,564,608)
(9,973,044)
(9,614,682)
(9,183,152)
(9,507,465)
Total Shareholders' Equity
71,186,420
69,013,078
68,094,209
68,029,708
67,141,158
Total Liabilities and Shareholders' Equity
$ 988,628,126
$ 995,694,033
$ 974,345,437
$ 936,619,852
$ 930,132,469
Community Heritage Financial , Inc. and Subsidiaries
Selected Financial Data (unaudited)
As of Period End
12/31/2023
9/30/2023
6/30/2023
3/31/2023
12/31/2022
Per Share Data
Common shares outstanding at period end
2,911,670
2,905,973
2,905,973
2,905,973
2,905,973
Book value per share
$ 24.45
$ 23.75
$ 23.43
$ 23.41
$ 23.10
Tangible book value per share
$ 23.88
$ 23.18
$ 22.86
$ 22.84
$ 22.53
Capital (bank consolidated only unless noted otherwise)
Common equity tier 1 (CET1) capital
12.02 %
12.15 %
11.95 %
12.30 %
12.27 %
Tier 1 capital
12.02 %
12.15 %
11.95 %
12.30 %
12.27 %
Total risk based capital
13.10 %
13.21 %
13.12 %
13.47 %
13.39 %
Tier 1 leverage ratio
9.10 %
9.34 %
9.52 %
9.57 %
9.53 %
Tangible common equity to tangible assets (CHF)
7.04 %
6.78 %
6.83 %
7.10 %
7.05 %
Asset Quality Data
Non-accrual loans
$ 1,823,212
$ 1,882,614
$ 1,929,248
$ 2,082,556
$ 1,727,642
Non-performing assets
$ 1,823,212
$ 1,882,614
$ 1,929,248
$ 2,082,556
$ 1,727,642
Non-performing loans to loans
0.22 %
0.24 %
0.24 %
0.27 %
0.23 %
Non-performing assets to total assets
0.18 %
0.19 %
0.20 %
0.22 %
0.19 %
Allowance for loan credit losses to loans
0.95 %
0.92 %
1.02 %
1.04 %
0.98 %
Other Data
Loans to deposits ratio
92.73 %
89.76 %
93.66 %
92.86 %
89.16 %
Community Heritage Financial , Inc. and Subsidiaries
Statements of Income (unaudited)
Three Months Ended
Percent
Year Ended
Percent
12/31/2023
12/31/2022
Change
12/31/2023
12/31/2022
Change
Interest Income
Loans, including fees
$ 10,659,287
$ 8,506,375
25.31 %
$ 39,596,782
$ 29,365,769
34.84 %
Securities
754,731
727,876
3.69 %
3,020,444
2,804,729
7.69 %
Fed funds sold and other
496,210
125,813
294.40 %
890,774
200,851
343.50 %
Total interest income
11,910,228
9,360,064
27.25 %
43,508,000
32,371,349
34.40 %
Interest Expense
Deposits
4,755,804
1,770,167
168.66 %
15,510,740
3,437,720
351.19 %
Borrowed funds
160,901
366,438
-56.09 %
925,582
522,598
77.11 %
Subordinated debt
238,049
238,049
0.00 %
952,197
952,197
0.00 %
Total interest expense
5,154,754
2,374,654
117.07 %
17,388,519
4,912,515
253.96 %
Net interest income
6,755,474
6,985,410
-3.29 %
26,119,481
27,458,834
-4.88 %
Provision for credit losses
275,339
(196,987)
-239.78 %
(747,330)
812,855
-191.94 %
Net interest income after provision for credit losses
6,480,135
7,182,397
-9.78 %
26,866,811
26,645,979
0.83 %
Non-interest income
Service charges on deposits
209,331
190,655
9.80 %
786,938
747,100
5.33 %
Earnings on bank owned life insurance
95,633
61,933
54.41 %
197,694
58,826
236.07 %
Gain on sale of fixed assets
-
48,940
Na
19,907
65,448
-69.58 %
Gain on sale of mortgage loans
254,867
(461,671)
-155.21 %
1,153,123
2,074,227
-44.41 %
Other
349,211
257,808
35.45 %
1,108,393
983,348
12.72 %
Total non-interest income
909,042
97,665
830.78 %
3,266,055
3,928,949
-16.87 %
Non-interest expense
Salaries and employee benefits
3,536,962
2,784,132
27.04 %
14,133,013
12,098,456
16.82 %
Occupancy and equipment
948,591
808,870
17.27 %
3,598,439
3,110,087
15.70 %
Legal and professional fees
206,178
181,490
13.60 %
928,984
710,697
30.71 %
Advertising
77,100
134,085
-42.50 %
301,300
276,520
8.96 %
Data processing
752,980
803,583
-6.30 %
2,860,788
2,661,680
7.48 %
FDIC insurance
190,695
154,074
23.77 %
639,080
570,508
12.02 %
Loss on sale of fixed assets
-
-
Na
3,058
-
Na
Other intangible amortization
-
-
Na
-
695
Na
Other
471,476
500,523
-5.80 %
1,986,239
1,828,549
8.62 %
Total non-interest expense
6,183,982
5,366,757
15.23 %
24,450,901
21,257,192
15.02 %
Income before income taxes
1,205,195
1,913,305
-37.01 %
5,681,965
9,317,736
-39.02 %
Income tax expense
282,204
469,282
-39.86 %
1,386,803
2,462,232
-43.68 %
Net income
$ 922,991
$ 1,444,023
-36.08 %
$ 4,295,162
$ 6,855,504
-37.35 %
Community Heritage Financial , Inc. and Subsidiaries
Per Share Data (unaudited)
Three Months Ended
Percent
Year Ended
Percent
12/31/2023
12/31/2022
Change
12/31/2023
12/31/2022
Change
Earnings per common share
Basic
$ 0.32
$ 0.50
-36.59 %
$ 1.48
$ 2.85
-48.16 %
Diluted
$ 0.32
$ 0.50
-36.85 %
$ 1.47
$ 2.84
-48.37 %
Common shares outstanding at period end
2,911,670
2,905,973
0.20 %
2,911,670
2,905,973
0.20 %
Average common shares outstanding
Basic
2,911,254
2,874,980
1.26 %
2,907,304
2,408,516
20.71 %
Diluted
2,923,057
2,874,980
1.67 %
2,928,985
2,410,177
21.53 %
Cash dividends per common share
$ 0.06
$ 0.04
50.00 %
$ 0.24
$ 0.16
50.00 %
Community Heritage Financial , Inc. and Subsidiaries
Selected Financial Performance Ratios (unaudited)
Three Months Ended
Year Ended
12/31/2023
12/31/2022
12/31/2023
12/31/2022
Return on average assets
0.36 %
0.62 %
0.44 %
0.78 %
Return on average equity
5.30 %
8.69 %
6.22 %
11.99 %
Net interest margin
2.71 %
3.05 %
2.76 %
3.21 %
Yield on interest-earning assets
4.78 %
4.08 %
4.60 %
3.78 %
Cost of interest-bearing liabilities
2.99 %
1.65 %
2.71 %
0.94 %
Net loan charge-offs to average loans
0.00 %
0.00 %
0.00 %
0.00 %
Community Heritage Financial , Inc. and Subsidiaries
Statements of Income - Five Quarters (unaudited)
Three Months Ended
12/31/2023
9/30/2023
6/30/2023
3/31/2023
12/31/2022
Interest Income
Loans, including fees
$ 10,659,287
$ 10,139,353
$ 9,453,437
$ 9,344,705
$ 8,506,375
Securities
754,731
763,606
767,524
734,583
727,876
Fed funds sold and other
496,210
203,553
81,306
109,705
125,813
Total interest income
11,910,228
11,106,512
10,302,267
10,188,993
9,360,064
Interest Expense
Deposits
4,755,804
4,369,856
3,459,747
2,925,333
1,770,167
Borrowed funds
160,901
201,754
482,469
80,458
366,438
Subordinated debt
238,049
238,050
238,049
238,049
238,049
Total interest expense
5,154,754
4,809,660
4,180,265
3,243,840
2,374,654
Net interest income
6,755,474
6,296,852
6,122,002
6,945,153
6,985,410
Provision for credit losses
275,339
(842,717)
260,439
(440,391)
(196,987)
Net interest income after provision for credit losses
6,480,135
7,139,569
5,861,563
7,385,544
7,182,397
Non-interest income
Service charges on deposits
209,331
202,779
187,426
187,402
190,655
Earnings on bank owned life insurance
95,633
8,360
43,672
50,029
61,933
Gain on sale of fixed assets
-
19,907
-
-
48,940
Mortgage banking revenue
254,867
365,860
302,911
229,485
(461,671)
Other
349,211
244,074
269,503
245,605
257,808
Total non-interest income
909,042
840,980
803,512
712,521
97,665
Non-interest expense
Salaries and employee benefits
3,536,962
3,736,317
3,286,113
3,573,621
2,784,132
Occupancy and equipment
948,591
842,651
815,251
991,946
808,870
Legal and professional fees
206,178
242,671
294,626
185,509
181,490
Advertising
77,100
57,855
87,070
79,275
134,085
Data processing
752,980
618,593
688,229
800,986
803,583
FDIC insurance
190,695
163,731
130,622
154,032
154,074
Loss on sale of fixed assets
-
-
-
3,058
-
Other intangible amortization
-
-
-
-
-
Other
471,476
485,493
566,953
462,317
500,523
Total non-interest expense
6,183,982
6,147,311
5,868,864
6,250,744
5,366,757
Income before income taxes
1,205,195
1,833,238
796,211
1,847,321
1,913,305
Income tax expense
282,204
467,482
179,858
457,259
469,282
Net income
$ 922,991
$ 1,365,756
$ 616,353
$ 1,390,062
$ 1,444,023
Community Heritage Financial , Inc. and Subsidiaries
Selected Financial Performance Ratios (unaudited)
Three Months Ended
12/31/2023
9/30/2023
6/30/2023
3/31/2023
12/31/2022
Return on average assets
0.36 %
0.55 %
0.26 %
0.60 %
0.78 %
Return on average equity
5.32 %
7.95 %
3.59 %
8.25 %
11.99 %
Net interest margin
2.71 %
2.62 %
2.61 %
3.08 %
3.05 %
Yield on interest-earning assets
4.78 %
4.57 %
4.43 %
4.52 %
4.08 %
Cost of interest-bearing liabilities
2.99 %
2.91 %
2.67 %
2.22 %
1.65 %
Net loan charge-offs to average loans
0.00 %
0.00 %
0.00 %
0.00 %
0.00 %
Community Heritage Financial , Inc. and Subsidiaries
