Traditions Bancorp, Inc. Reports First Quarter 2023 Earnings

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Apr 27, 2023, 05:55 ET

YORK, Pa., April 27, 2023 /PRNewswire/ -- Traditions Bancorp, Inc. (OTC Pink: TRBK) reported net income of $1.5 million for the first quarter ended March 31, 2023, compared to $1.1 million in the linked quarter and $1.5 million for the first quarter of 2022. The earnings improvement over the linked quarter was due to an increase in interest income driven by loan growth, rising variable rate loan yields, and a pick-up in mortgage gains. However, higher retail and wholesale deposit funding costs have suppressed margins. The company reported earnings per share (diluted) of 55 cents for the first quarter ended March 31, 2023, compared to 38 cents in the linked quarter and 52 cents for the first quarter of 2022. Unrealized investment portfolio losses, flowing through Accumulated Other Comprehensive Loss, have decreased to $10.5 million at quarter end compared to $11.9 million in the linked quarter. Net of taxes the company recorded a $2.8 million CECL adjustment which, combined with the AOCI change, has resulted in a book value per common share of $22.41 on March 31, 2023, versus $20.44 in the linked quarter and $21.46 for the first quarter of 2022. Regulatory Tier 1 book value per share stood at $26.18 on March 31, 2023.

"Traditions Bancorp had a satisfactory start to 2023 amid an uncertain economic environment and turmoil within the banking industry," stated Eugene J. Draganosky, Chief Executive Officer. "We took a measured approach to earning asset generation by increasing our commercial loan portfolio and slowing growth of residential mortgage loans held on our balance sheet. Loan growth was primarily funded by core deposits and supplemented by wholesale funding channels. While we have not utilized the Federal Reserve's Bank Term Funding Program, it is a tool we could deploy in short order if necessary. Fortunately, our liquidity position is strong, and our deposit base remains stable. The hallmarks of our organization remain prudent risk management, pristine credit quality, and an unwavering commitment to our culture."

Quarterly Highlights – First Quarter 2023 versus First Quarter 2022

Loans grew by $94.6 million, or 18%, over 1Q22.
Deposits increased by $30.1 million, or 4%, over the last 12 months. All growth came in the first quarter of 2023.
Net interest margin expanded to 3.45% in 1Q23 compared to 3.33% in 1Q22, driven by growth in commercial and adjustable-rate residential mortgage loans, the positive impact of short-term interest rate increases on the loan portfolio's yield, and a 1.65% cost of funds for the quarter.
Gains on the sale of mortgages were $1.0 million for 1Q23, declining from $1.8 million in 1Q22. However, gains were up $0.6 million from 4Q22.
The mortgage pipeline decreased to $10.0 million from $16.8 million in the linked quarter and $56.8 million on March 31, 2022. Residential mortgage loans sold in 1Q23 were $35.5 million compared to $41.3 million in the linked quarter and $55.2 million for 1Q22. Elevated market rates and limited home inventories continue to impact mortgage banking revenue.
On April 19, 2022, the company announced regular quarterly cash dividends and paid eight cents per common share on May 13, August 15, November 14, 2022, and on February 13, 2023. A first-quarter cash dividend of eight cents per common share was declared on April 20, 2023, and is payable on May 15, 2023, to shareholders of record at the close of business on May 5, 2023.
As part of its Share Repurchase Plan announced on March 24, 2022, the company repurchased 5,000 shares during the first quarter. The total number of shares repurchased since the program's inception was 79,517 at a cost of $1.7 million or $21.97 per share.
Net interest income increased $0.8 million, or 14%, driven by growth in commercial and residential mortgage loans, the Federal Reserve Bank's short-term interest rate increases, and a relatively low, but rising, cost of funds.
Other expense has increased 3% from $6.1 million in 1Q22 to $6.3 million in 1Q23, primarily driven by inflation and other rising costs.
As of March 31, 2023, the bank had a negative provision of $229 thousand, due mainly to net recoveries of $148 thousand in 1Q23.

Credit Quality and Capital Insights:

Nonaccrual loans, concentrated in several residential mortgages, increased in 1Q23, from $2.3 million in 4Q22 to $2.8 million in the current quarter.
Non-performing assets to total assets increased from 0.30% in the linked quarter to 0.35% in the current quarter. There was no foreclosed other real estate.
Delinquencies greater than 30 days were 0.49% of total loans as of March 31, 2023, down from 0.65% as of December 31, 2022.
The Allowance for Credit Losses (ACL) was reported under CECL for the first time in 1Q23. The CECL adjustment was a $2.8 million net of tax increase to retained earnings. While future recessionary concerns are influencing our CECL qualitative adjustments, the ACL is heavily weighted on historical losses which have been minimal for many years. The bank's ACL ratio was 0.52% as of March 31, 2023, down from the ALLL-to-total loans ratio of 1.20% as of December 31, 2022. Despite the reduction, the March 31, 2023, ACL covered non-performing loans over 1.15 times.
The bank remains well capitalized.

FINANCIAL HIGHLIGHTS (unaudited): (Dollars in thousands, except per share data)
Selected Financial Data		Mar 31, 2023		Dec 31, 2022		Mar 31, 2022
Investment securities	$	122,562	$	126,972	$	139,745
Loans, net of unearned income		624,957		597,950		530,360
Allowance for credit losses		3,262		7,155		7,153
Total assets		808,298		776,833		747,616
Deposits		707,971		672,294		677,900
Borrowings		26,657		36,249		-
Shareholders' equity		62,474		56,983		60,865
Common book value per common share	$	22.41	$	20.44	$	21.46
Tier 1 book value per common share	$	26.18	$	24.69	$	23.39
Allowance/loans		0.52 %		1.20 %		1.35 %
Non-performing assets/total assets		0.35 %		0.30 %		0.17 %
Tier 1 capital/average assets		9.10 %		8.74 %		9.09 %
Tier 1 capital/risk-weighted assets		12.19 %		11.94 %		12.58 %
Total capital/risk-weighted assets		12.78 %		13.18 %		13.94 %
Common shares outstanding		2,788		2,788		2,836

	Three months ended Mar 31,
Selected Operations Data		2023		2022
Interest income	$	8,831	$	5,909
Interest expense		(2,360)		(211)
Net interest income		6,471		5,698
Provision for credit losses		229		-
Investment securities gains (losses)		-		-
Gains on sale of mortgages		969		1,813
Other income		505		471
Other expense		(6,271)		(6,110)
Income before income taxes		1,903		1,872
Income taxes		(361)		(374)
Net income	$	1,542	$	1,498
Earnings per common share (basic)	$	0.55	$	0.52
Earnings per common share (diluted)	$	0.55	$	0.52
Return on average assets		0.79 %		0.83 %
Return on average equity		10.31 %		9.41 %
Net interest margin		3.45 %		3.33 %
Efficiency ratio		78.93 %		76.55 %
Net charge-offs(recoveries)/average loans		-0.10 %		0.00 %
Average common shares		2,807		2,858

SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS:

This release contains forward-looking statements about Traditions Bancorp, Inc. that are intended to be covered by the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts. These statements can be identified by the use of forward-looking terminology such as "believe," "expect," "may," "will," "should," "project," "plan," "seek," "intend," "anticipate" or similar terminology. Such forward-looking statements include, but are not limited to, discussions of strategy, financial projections and estimates and their underlying assumptions; statements regarding plans, objectives, goals, expectations or consequences; and statements about future performance, operations, products and services of Traditions Bancorp.

Traditions Bancorp cautions readers not to place undue reliance on forward-looking statements and to consider possible events or factors that could cause results or performance to materially differ from those expressed in the forward-looking statements, including, but not limited to: ineffectiveness of the organization's business strategy due to changes in current or future market conditions; the effects of competition, and of changes in laws and regulations on competition, including industry consolidation and development of competing financial products and services; interest rate movements; difficulties in integrating distinct business operations, including information technology difficulties; challenges in establishing and maintaining operations in new markets; volatilities in the securities markets; and deteriorating economic conditions.

Forward-looking statements in this release speak only as of the date of this release and Traditions Bancorp makes no commitment to review or update such statements to reflect changes that occur after the date the forward-looking statement was made.

SOURCE Traditions Bancorp, Inc.