Community Heritage Financial, Inc. Reports Earnings for the Third Quarter of 2022

Rhea-AI Summary

Community Heritage Financial, Inc. (OTC PK: CMHF) reported a net income of $5.41 million or $2.40 per share for the nine months ended September 30, 2022, reflecting a 13.7% increase from the previous year. However, third quarter income was $1.52 million, down 26.6% from the previous quarter. Total assets grew to $909.7 million, driven by a $34.5 million loan increase. While net interest income rose, higher operating expenses and reduced non-interest income affected earnings. The company declared a $0.04 per share dividend, payable on November 11, 2022.

Positive

• Net income for the nine months reached $5.41 million, up 13.7% YoY.
• Total assets increased by $37.1 million to $909.7 million.
• Gross loans grew by $34.5 million from the previous quarter.
• Tangible book value per share increased by $0.12 to $22.79.
• Dividend of $0.04 per share declared.

Negative

• Third quarter net income decreased by 26.6% from the second quarter.
• Operating expenses rose by $727 thousand due to higher employee costs.
• Non-interest income fell by $133 thousand due to declining mortgage activity.
• Net interest margin dropped from 3.45% to 3.35% quarter-over-quarter.

MIDDLETOWN, Md., Oct. 25, 2022 /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, 2022 the Company earned net income of $5.41 million or $2.40 per share, an increase of $653 thousand or 13.7% compared to net income of $4.76 million or $2.11 per share for the nine months ended September 30, 2021. Third quarter 2022 net income was $1.52 million or $0.68 per share, a decrease of $550 thousand compared to second quarter 2022 net income of $2.07 million and a decrease of $737 thousand compared to $2.26 million for the third quarter of 2021.

Balance sheet growth remained strong during the third quarter with total assets growing by $37.1 million, up from $872.6 million as of June 30, 2022 to $909.7 million as of September 30, 2022.  Total assets were up $91.8 million on a year-to-date basis for 2022 compared to $817.9 million as of December 31, 2021. The asset growth for the quarter and for the year has been driven by strong loan growth.  Total loans grew $34.5 million from $692.8 million as of June 30, 2022 to $727.3 million as of September 30, 2022 and are up $129.3 million (excluding PPP loans) from December 31, 2021. Due to rapidly rising market rates and a decline in liquidity within the economy due to higher inflation, the third quarter saw increased competition for core deposit dollars within the banking industry. Overall funding for the balance sheet and loan growth as noted previously has come from: 1) the deployment of cash, with cash balances going from $41.3 million as of December 31, 2021 to $15.8 million as of September 30, 2022, 2) deposit growth of $41.6 million, with deposit balances increasing from $736.7 million as of December 31, 2021 to $778.3 million as of September 30, 2022 and 3) an increase in short-term borrowing from zero outstanding at December 31, 2021 and $5.0 million as of June 30, 2022 to $53.0 million as of September 30, 2022.

Earnings for the third quarter were impacted by increased interest expense related to the balance sheet funding as noted above. Interest expense increased from $630 thousand in the second quarter of 2022 to $1.3 million for the third quarter of 2022.  While funding costs increased, this was largely off-set by increased interest income directly related to the strong loan growth noted above and by the repricing of variable rate loan products within the portfolio, which were tied to the Fed rate increases during the quarter.  While net interest margin dropped quarter over quarter from 3.45% in the second quarter of 2022 to 3.35% in the third quarter of 2022, earning asset volumes helped to push overall net interest income higher for the quarter.  Most of the decrease in earnings comparing third quarter 2022 to second quarter 2022 can be attributed to lower non-interest income, down $133 thousand due to a slow-down in mortgage activity related to rising rates, and increased operating expenses, up $727 thousand for the quarter, related to higher employee costs, data processing expense and other operating expenses. Management continues to recognize the importance of the employee base to the success of the Company and in a proactive move to reward all employees and to help off-set higher cost of living due to high inflation, the Company increased salaries by 5% effective July 1, 2022 to all employees throughout the organization.  Increased communications expense related to volume and technology upgrades contributed to increased data processing expense on a quarter over quarter basis, up $126 thousand comparing the third quarter to second quarter 2022.  "Other" operating expense increased $372 thousand when comparing third quarter 2022 to second quarter 2022.   The second quarter expense was lower than normal due to a one-time credit adjustment to the provision for off-balance sheet credit lines of approximately $356 thousand to better represent unused line commitments.  Income tax expense was also slightly higher during the third quarter due to small adjustments related to the effective tax rate and deferred tax calculations.

In summary, strong earning asset growth for the quarter helped to off-set funding cost pressure and lower secondary mortgage revenue; however, higher operating expenses, due in part to a one-time credit in the second quarter, resulted in lower overall earnings for the third quarter of 2022 when compared to second quarter 2022 results.  Year-to-date through September 30, 2022 the Company has recorded net income of $5.4 million, the highest first nine-month earnings in the history of the Company.        

Subsequent Events:

On October 3, 2022 the Company announced the closing of its underwritten public offering of 600,000 shares of common stock at a public offering price of $21.00 per share.  The offering resulted in gross proceeds to the Company of approximately $12.6 million.  The net proceeds to the Company, after deducting underwriting discount and estimated offering expenses was approximately $11.4 million.

The Company is also providing an update on its previously reported data security incident.  On October 1, 2022, the Bank determined there was unauthorized access to a portion of its information technology system.  Within hours of the detection of the event, the Bank implemented a series of containment and remediation measures to address the situation.  The Bank also launched an investigation and engaged legal counsel, a computer forensic firm and other incident response professionals.  In connection with the investigation, the Bank subsequently became aware that the incident impacted files containing certain customer information.  The Bank is currently notifying all individuals identified to date, consistent with applicable laws whose information may have been impacted, including Bank customers and others whose information was contained in those files.  All impacted individuals will be offered free credit monitoring and identity theft protection services.  Currently, the Company does not believe that this data security incident will have a material adverse impact on its financial condition or results of operation.

Quarterly Highlights – 3Q22 vs 2Q22

• Tangible book value per share increased by $0.12 from $22.67 per share at June 30, 2022, to $22.79 as of September 30, 2022. The tangible book value increase was due to earnings of $1.52 million for the quarter partially off-set by additional adjustments to accumulated other comprehensive loss of $1.18 million for the third quarter.
• Gross loans increased by $34.5 million or 5.0% for the third quarter of 2022 compared to the second quarter of 2022. All PPP loan forgiveness was completed during the second quarter and there were no loan balances, interest income or fee income included in third quarter results related to the PPP loan program.
• Overall deposits were down $12.5 million for the third quarter from $790.8 million as of June 30, 2022 to $778.3 million as of September 30, 2022. Balances were down due to less liquidity in the economy due to higher inflation and less government stimulus along with higher market rates and competition for deposit dollars. Ending deposit balances included $10 million in brokered CDs, as of September 30 and June 30, 2022.
• Net interest margin was impacted by increased market pressure on rates as a result of the numerous Fed rate increases during the quarter and year-to-date. While loan growth has remained strong, deposit growth slowed during the third quarter and the Bank added wholesale funds to the balance sheet to fund the growth. As of September 30, 2022 the Bank had $50 million in short-term (less than 30-day maturities) FHLB advances outstanding and an additional $3 million in overnight fed funds outstanding. Net interest margin fell 10 basis points to 3.35% in the third quarter of 2022 from 3.45% in the second quarter of 2022; however, due to the increased volume in earning assets as noted previously, net interest income increased $193 thousand at the Company level.
• The allowance for loan losses to total loans ratio was 1.03% at September 30, 2022, no change from the June 30, 2022 ratio of 1.03%. The reserve ratio stayed consistent for the third quarter based on additional provision expense of $424 thousand directly related to the loan growth as noted above. Credit quality remained strong with non-performing assets to total assets at 0.20% as of September 30, 2022 and no loan charge offs for the third quarter of 2022.

Quarterly Highlights – 3Q22 vs 3Q21

• Tangible book value per share decreased $1.30 per share to $22.79 as of September 30, 2022 compared to $24.09 as of September 30, 2021. The tangible book value decrease was due to an increase in the accumulated other comprehensive loss to $10.1 million as of September 30, 2022 compared to $779 thousand as of September 30, 2021.
• Gross loans of $727.3 million as of September 30, 2022 were up $156.6 million or 27.4% compared to September 30, 2021, which includes PPP loan forgiveness of $17.9 million during the time period. Excluding PPP loans, core loan growth on a year-over-year basis was $174.4 million or 31.6%.
• Total deposits at September 30, 2022 were $778.3 million, an increase of $79.7 million or 11.4% compared to $698.6 million as of September 30, 2021. September 30, 2022 includes $10 million in brokered CD deposits compared to $244 thousand as of September 30, 2021.
• Net interest margin for the third quarter of 2022 was 3.35% at the Bank level compared 3.48% for the third quarter of 2021. Increased cost of funds for the third quarter of 2022 as noted earlier along with no PPP interest and fee income in the third quarter of 2022 compared to $698 thousand in the third quarter of 2021 accounts for most of the variance.
• The loan loss provision for the quarter ended September 30, 2022 was $424 thousand compared to a recovery of $243 thousand for the third quarter of 2021. The third quarter of 2021 included $550 thousand in recoveries related to an isolated charge-off in the second quarter of 2021, which allowed for the recovery in the third quarter of 2021.
• Non-interest income of $1.18 million for the third quarter of 2022 was down $508 thousand compared to $1.69 million for the third quarter of 2021. Lower refinancing and secondary mortgage activity due to the rising rate environment in 2022 account for most of the decrease.
• Non-interest expense for the third quarter of 2022 was $5.69 million, an increase of $682 thousand compared to $5.01 million for the third quarter of 2021. Increased employee costs and data processing fees to support the growth of the Company account for most of the increase along with year-over-year inflation related to general operating costs.

Dividend

A dividend of $0.04 per share was declared by the Board of Directors on October 21, 2022, for stockholders of record as of November 4, 2022, and payable on November 11, 2022.

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,
			2022		2022		2022		2021		2021
			(Unaudited)		(Unaudited)		(Unaudited)		(Audited)		(Unaudited)
Assets
Cash and due from banks		$	15,829,569	$	15,495,064	$	34,704,104	$	41,255,045	$	55,559,304
	Total cash and cash equivalents		15,829,569		15,495,064		34,704,104		41,255,045		55,559,304
Securities available-for-sale, at fair value			39,352,159		38,181,195		143,435,198		144,019,313		130,430,620
Securities held to maturity			102,703,746		104,434,552		-		-		-
	Total securities		142,055,905		142,615,747		143,435,198		144,019,313		130,430,620
Equity securities, at cost			2,281,400		593,900		406,400		337,700		337,700
Loans			727,346,209		692,810,899		643,877,606		610,501,481		570,726,817
Less allowance for loan loss			7,524,423		7,097,516		6,492,858		6,499,690		6,071,485
	Loans, net		719,821,786		685,713,383		637,384,748		604,001,791		564,655,332
Loans held for sale			2,536,184		2,729,626		4,043,863		5,423,358		7,962,808
Premises and equipment, net			6,594,337		6,528,753		6,673,970		6,771,220		6,858,448
Right-of-use assets			2,989,453		2,085,283		2,191,459		2,300,829		2,417,317
Accrued interest receivable			2,124,769		2,263,562		2,067,109		1,971,018		1,737,650
Deferred tax assets			5,353,435		4,917,422		4,916,198		2,140,827		2,007,012
Bank-owned life insurance			6,746,834		6,475,884		6,484,376		6,475,067		6,442,566
Goodwill			1,656,507		1,656,507		1,656,507		1,656,507		1,656,507
Intangible assets			-		-		-		695		2,778
Other Assets			1,748,574		1,487,765		1,597,527		1,556,354		1,715,323
	Total Assets	$	909,738,753	$	872,562,896	$	845,561,459	$	817,909,724	$	781,783,365
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Non-interest-bearing demand		$	277,747,419	$	294,684,219	$	287,579,008	$	272,399,626	$	254,056,956
Interest-bearing			500,526,922		496,127,473		482,651,234		464,285,444		444,489,020
	Total Deposits		778,274,341		790,811,692		770,230,242		736,685,070		698,545,976
Federal home loan bank advances			53,000,000		5,000,000		-		-		-
Subordinated debt, net			14,820,606		14,798,182		14,775,758		14,753,333		14,730,909
Other borrowings			-		-		(687)		1,887,060		2,629,280
Lease liabilities			3,052,126		2,155,281		2,259,527		2,367,676		2,480,107
Accrued interest payable			382,450		176,479		396,806		189,842		409,261
Other liabilities			7,252,244		6,930,947		6,839,814		5,071,852		7,099,442
	Total Liabilities		856,781,767		819,872,581		794,501,460		760,954,833		725,894,975
Shareholders' Equity
Common stock, par value $.01;shares authorized 10,000,000; shares issued
	and outstanding, 2,251,320.		22,513		22,513		22,513		22,513		22,513
Additional paid-in-capital			28,580,504		28,566,129		28,551,754		28,537,379		28,523,004
Retained earnings			34,429,771		32,999,658		31,019,099		29,288,449		28,121,441
Accumulated other comprehensive (loss)			(10,075,802)		(8,897,985)		(8,533,367)		(893,450)		(778,568)
	Total Shareholders' Equity		52,956,986		52,690,315		51,059,999		56,954,891		55,888,390
	Total Liabilities and Stockholders' Equity	$	909,738,753	$	872,562,896	$	845,561,459	$	817,909,724	$	781,783,365

 

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,
			2022		2022		2021		2022		2021
Interest Income
	Loans, including fees	$	7,656,443	$	6,840,541	$	6,407,015	$	20,859,443	$	19,241,739
	Securities		729,659		704,665		436,526		2,076,853		1,088,144
	Fed funds sold and other		42,699		17,834		26,859		75,037		40,685
	Total interest income		8,428,801		7,563,040		6,870,400		23,011,333		20,370,568
Interest Expense
	Deposits		886,091		351,887		427,313		1,571,957		1,370,982
	Borrowed funds		155,208		16,173		-		171,381		947
	Subordinated debt		238,050		238,049		238,049		714,148		714,148
	Other Interest Expense		23,768		23,875		45,324		80,376		167,823
	Total interest expense		1,303,117		629,984		710,686		2,537,862		2,253,900
Net interest income			7,125,684		6,933,056		6,159,714		20,473,471		18,116,668
Provision for (recovery of) loan losses			423,907		577,632		(243,346)		1,009,842		2,652,690
Net interest income after provision for (recovery of) loan losses			6,701,777		6,355,424		6,403,060		19,463,629		15,463,978
Non-interest income
	Service charges on deposits		201,836		196,519		180,225		556,446		555,060
	Earnings bank owned life insurance		12,659		(16,784)		40,956		(3,107)		137,952
	Gain sale of fixed assets		-		16,508		-		16,508		1,500
	Gain sale of securities		-		-		-		-		196,091
	Mortgage loan income activity		737,355		878,041		1,252,561		2,397,222		4,026,646
	Other non-interest income		225,600		236,352		211,864		725,493		585,771
	Total non-interest income		1,177,450		1,310,636		1,685,606		3,692,562		5,503,020
Non-interest expense
	Salaries and employee benefits		3,295,141		3,068,690		2,967,511		9,314,325		8,430,445
	Occupancy and equipment		760,527		771,166		708,358		2,301,217		2,091,761
	Legal and professional fees		187,301		161,210		155,208		529,207		474,478
	Advertising		142,327		149,740		130,244		475,271		417,594
	Data processing		726,602		600,583		544,371		1,849,786		1,637,674
	FDIC premiums		137,991		142,860		93,840		416,434		317,599
	Loss sale of securities		-		-		-		-		17,826
	Other intangible amortization		-		-		2,083		695		6,250
	Other		443,659		72,045		409,500		864,825		1,008,063
	Total non-interest expense		5,693,548		4,966,294		5,011,115		15,751,760		14,401,690
Income before taxes			2,185,679		2,699,766		3,077,551		7,404,431		6,565,308
Income tax expense			665,512		629,153		820,160		1,992,950		1,807,083
Net Income		$	$1,520,167	$	$2,070,613	$	$2,257,391	$	$5,411,481	$	$4,758,225
Basic earnings per share		$	0.68	$	0.92	$	1.00	$	2.40	$	2.11
Diluted earnings per share		$	0.67	$	0.92	$	1.00	$	2.40	$	2.11

 

Community Heritage Financial, Inc. and Subsidiaries
Selected Financial Data
Income Statement Review
		For the Three Months Ended						Nine Months Ended
		September 30,		June 30,		September 30,		September 30,		September 30,
		2022		2022		2021		2022		2021
		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Interest Income	$	8,428,801	$	7,563,040	$	6,870,400		23,011,333		20,370,568
Interest Expense		1,303,117		629,984		710,686		2,537,862		2,253,900
Net interest income		7,125,684		6,933,056		6,159,714		20,473,471		18,116,668
Provision expense (recovery)		423,907		577,632		(243,346)		1,009,842		2,652,690
Net interest income after provision (recovery)	$	6,701,777	$	6,355,424	$	6,403,060		19,463,629		15,463,978
Non-interest income	$	1,177,450	$	1,310,636	$	1,685,606		3,692,562		5,503,020
Non-interest expense		5,693,548		4,966,294		5,011,115		15,751,760		14,401,690
Yield on interest-earning assets		3.84 %		3.64 %		3.71 %		3.68 %		3.88 %
Cost of interest-bearing liabilities		0.96 %		0.51 %		0.63 %		0.67 %		0.70 %
Efficiency ratio		68.57 %		60.24 %		63.85 %		65.18 %		60.95 %
Balance Sheet Review
		September 30,		June 30,				September 30,
		2022		2022				2021
		(Unaudited)		(Unaudited)				(Unaudited)
Total assets	$	909,738,753	$	872,562,896			$	781,783,365
Loans, net of reserve		719,821,786		685,713,383				564,655,332
Goodwill & intangibles		1,656,507		1,656,507				1,659,285
Deposits		778,274,341		790,811,692				698,545,976
Shareholder's equity		52,956,986		52,690,315				55,888,390
Asset Quality Review
Non-accrual loans	$	969,229	$	997,403			$	497,762
Non-accrual troubled debt restructured		864,845		882,797				973,405
Non-performing assets		1,834,074		1,880,200				1,471,167
Trouble debt restructured loans still accruing		748,284		751,922				962,517
Non-performing assets to total assets		0.20 %		0.22 %				0.19 %
Non-performing assets to total loans		0.25 %		0.27 %				0.25 %
Summary of Operating Results
		For the Three Months Ended				For the Nine Months Ended
		September 30,		September 30,		September 30,		September 30,
		2022		2021		2022		2021
		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Pre-allowance for Loan Loss provision (recovery), pre-tax net income	$	2,609,586	$	2,834,205	$	8,414,273	$	9,217,998
Allowance for loan loss provision (recovery), pre-tax		423,907		(243,346)		1,009,842		2,652,690
Tax expense		665,512		820,160		1,992,950		1,807,083
Net Income	$	1,520,167	$	2,257,391	$	5,411,481	$	4,758,225
(dollars in thousands)
Charge-offs	$	-	$	53,561	$	7,108	$	4,654,935
(Recoveries)		(3,000)		(549,556)		(40,669)		(578,168)
Net (recoveries) charge-offs	$	(3,000)	$	(495,995)	$	(33,561)	$	4,076,767
Per Common Share Data
Common shares outstanding		2,251,320		2,251,320		2,251,320		2,251,320
Weighted average shares outstanding		2,251,320		2,251,320		2,251,320		2,251,320
Weighted average shares outstanding (diluted)		2,253,309		2,253,082		2,253,148		2,251,320
Basic earnings per share	$	0.68	$	1.00	$	2.40	$	2.11
Diluted earnings per share	$	0.67	$	1.00	$	2.40	$	2.11
Dividend declared	$	0.04	$	0.04	$	0.12	$	0.12
Book value per share	$	23.52	$	24.82	$	23.52	$	24.82
Tangible book value per share	$	22.79	$	24.09	$	22.79	$	24.09
Selected Financial Ratios (unaudited)
Return on average assets		0.68	%	1.17	%	0.85	%	0.87	%
Return on average equity		11.33	%	15.66	%	13.33	%	11.38	%
Allowance for loan losses to total loans		1.03	%	1.06	%	1.03	%	1.06	%
Allowance for loan loss to total loans (excluding PPP loans)		1.03	%	1.10	%	1.03	%	1.10	%
Non-performing assets to total loans		0.25	%	0.25	%	0.25	%	0.25	%
Non-performing assets to total loans (excluding PPP)		0.25	%	0.26	%	0.25	%	0.26	%
Net Charge-offs to total loans		0.00	%	-0.09	%	0.00	%	0.70	%
Common equity tier 1 (CET1) capital		10.71	%	10.74	%	10.71	%	10.74	%
Tier1 capital		10.71	%	10.74	%	10.71	%	10.74	%
Total risk based capital		11.86	%	11.88	%	11.86	%	11.88	%
Tier-1 leverage ratio		8.50	%	8.86	%	8.50	%	8.86	%
Average equity to average assets		5.98	%	7.49	%	6.33	%	7.65	%
Tangible Common Equity/Tangible Common Assets		5.65	%	6.95	%	5.65	%	6.95	%
Net interest margin (bank only)		3.35	%	3.45	%	3.38	%	3.61	%
Loans to deposits - (EOP)		93.78	%	81.70	%	93.78	%	81.70	%

 

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SOURCE Community Heritage Financial, Inc.

FAQ

What were Community Heritage Financial's earnings for Q3 2022?

Community Heritage Financial reported a net income of $1.52 million for Q3 2022.

How did CMHF's total assets change in Q3 2022?

Total assets increased by $37.1 million, reaching $909.7 million as of September 30, 2022.

What is the dividend declared by CMHF in October 2022?

A dividend of $0.04 per share was declared, payable on November 11, 2022.

How did CMHF's net interest income perform in Q3 2022?

Net interest income rose despite a decline in the net interest margin from 3.45% to 3.35%.

What factors impacted CMHF's earnings in Q3 2022?

Earnings were affected by increased operating expenses and a decrease in non-interest income.