Community Heritage Financial, Inc. Reports Earnings for the Year Ended 2023

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Jan 29, 2024, 16:15 ET

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.

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

Loan Composition (unaudited)

			As of Period End
			12/31/2023	9/30/2023	6/30/2023	3/31/2023	12/31/2022

Commercial real estate:
	Construction and land development		$ 89,525,228	$ 89,980,412	$ 88,750,860	$ 76,516,440	$ 70,396,959
	Multifamily		21,784,953	22,599,598	22,862,108	22,904,007	23,679,358
	Farmland		30,821,848	28,785,156	28,611,754	25,698,329	25,690,199
	Other:
		Owner occupied	136,628,801	131,398,708	130,090,900	133,831,920	118,316,075
		Non-owner occupied	119,979,964	122,587,639	129,674,501	134,387,213	123,793,254

Residential, including home equity			280,523,837	273,884,529	265,131,928	240,905,733	231,904,389
Commercial and industrial			128,933,413	124,154,237	127,334,140	118,840,144	150,421,114
Consumer			1,203,039	1,209,100	1,143,316	1,294,966	1,160,983
		Gross loans	809,401,083	794,599,379	793,599,507	754,378,752	745,362,331
		Net deferred loan costs	3,531,789	3,435,694	3,332,018	3,232,744	3,088,194
		Loans	$ 812,932,872	$ 798,035,073	$ 796,931,525	$ 757,611,496	$ 748,450,525